Of Terror, the IMF, Keynes, and the Fiscal Multiplier

OCTOBER 17, 2012 – Thursday October 11, International Monetary Fund (IMF) managing director Christine Lagarde said that both Greece and Spain should slow down their cuts to government spending. Well, not exactly. Her exact words were: “time is of the essence, meaning that instead of frontloading heavily, it is sometimes better, given circumstances and the fact that many countries at the same time go through that same set of policies with a view to reducing their deficit, it is sometimes better to have a bit more time” (Lagarde 2012). On its face, this makes little sense. But after wading through the doublespeak, and putting the entire quote in context, what it turns out she is saying is “slow down the cuts”. This is a complete reversal of two generations of neoliberal orthodoxy, and an implicit repudiation of the policies carried out by the IMF and its “sister” organizations in that period.

It is difficult to overstate the hypocrisy of Lagarde’s about face. The cuts against which she is now cautioning, were recommended in the first instance by … the IMF. It operates together with the European Central Bank (ECB) and the European Commission (EC), as the so-called “troika”, which arrogantly entered the waters of economic crisis in Greece, and then Spain, saying that there would be help for these troubled economies, but at a price – absolutely severe and damaging cuts to services, pensions and jobs.


The resulting “adjustment” of economies in Greece and Spain has proven more catastrophic than the IMF had anticipated. At the same press conference where Lagarde argued it was time to slow the cuts, she had earlier said: “the unemployment rates that we see in advanced economies, in particular, and among young people, are terrifying and unacceptable” (Lagarde 2012).

Indeed. In Greece, overall unemployment in the first quarter of 2012 stood at 22.5%. By July the rate had risen to 23.6%. When that rate is “seasonally adjusted”, it rises to 25.1%. For young people aged 15-24 unemployment is even worse, in the first quarter standing at a horrendous 51.2% (ELSTAT 2012a; ELSTAT 2012b). In Spain, overall unemployment in August stood at 25.1%, for young people, hitting 52.9% (Eurostat 2012a; Eurostat 2012b). These terrible statistics can, unfortunately, be quite easily summarized: in these two countries, fully one-quarter of those who want to work are unemployed, half of all young people.

These statistics are, in fact, terrifying. But why has the IMF waited until 2012 to become terrified? It should have been terrified in Bolivia in the 1980s when IMF-sponsored “shock therapy” cuts smashed that country’s tin industry, driving thousands of miners back to the countryside to eke out a living in the coca fields (Kohl and Farthing 2006). It should have been terrified in Rwanda in the early 1990s, when IMF-sponsored structural adjustment helped to precipitate a catastrophic shredding of civil society, laying the basis for the genocide which riveted the world in 1994 (Chossudovsky 1998, 111–120). It should have been terrified in Indonesia in 1998, when structural adjustment led to a massive increase in poverty (Stiglitz 2003, 89–132).

The Washington Consensus 

Focus on the latter country for a moment. One of the key policy recommendations of the IMF and friends in Indonesia in 1998 was to eliminate government subsidies for food and fuel – measures which devastated the lives of the poorest in the country, and led to quite understandable riots (2003, 119). This is in line with the anti-state-intervention, pro-free-market ideology which underlies all IMF-backed structural adjustment programmes. This ideology is more than just prejudice – it is a complete, carefully worked out worldview. The IMF is associated – along with two other Washington D.C. based institutions, the World Bank and the U.S. Treasury Department – with what since 1989 has been known as the “Washington Consensus” (Williamson 1990). That consensus maintains that, in the face of economic crisis, governments should cut spending and open their doors to the wonders of the free market. Being faithful to this ideology does, in fact, mean targeting policies such as fuel and food subsidies as “market-distorting” which, if left in place, will hold an economy back.

Let’s examine the question of subsidies in just a bit more detail. In Rwanda, for instance, the question of subsidies was huge – but not subsidies to the poor. The market-distorting subsidies which were blocking development in Rwanda, were billions of dollars of subsidies given every year to Global North multinationals – a class of subsidies treated somewhat differently, however, than the food and fuel subsidies in Indonesia.

Emerging from colonialism with a very poor and very rural economy, Rwanda attempted to develop by acquiring foreign exchange for investment through a shift from subsistence farming to growing crops for export. This has proven to be a difficult road for many Global South countries, and Rwanda was no exception. In the Global North, governments spend tens of billions of dollars – particularly in the European Union and the United States – to subsidize key agricultural products. Cotton production in the United States, for instance, received $24 billion in subsidies from 2001 to 2011 (Kinnock 2011). Through a “complex system of loans and quotas” sugar production (and hence sugar export) from the United States receives billions of dollars of government support (Zumbrun).

These subsidies can’t be understood as support for the beleaguered, small farmer in either the U.S. or the E.U. The real beneficiary is not the poor farmer in rural Pennsylvania with 16 head of Angus, but rather the huge agribusinesses. Between 1995 and 2010, in the U.S. – according to the Environmental Working Group – 74% of all subsidies ($166 billion in total) were collected by just 10% of farmers, 62% of farmers received nothing (Mercola 2012). In 2009 in the E.U, “one of the biggest subsidies was $223 million, given to the French sugar conglomerate Tereos, one of whose subsidiaries produces rum on France’s Indian Ocean territory of Réunion. France’s Saint Louis Sucre also received multimillion-dollar subsidies and the British sugar giant Tate & Lyle received hundreds of thousands of dollars” (Walt 2010).

So countries like Rwanda get forced – by this system of subsidies to Global North agribusiness – into certain “niches” of agricultural commodities, such as coffee, not easily grown in the US or Europe. State support for agribusiness in the Global North squeezes them out of other potential export areas (Okonski). By the 1980s, Rwanda was dependent for 80% of its foreign exchange earnings on the export of coffee (Chossudovsky 1998, 114). But coffee is notoriously vulnerable to price volatility resulting from over-production. So when in 1989 the price of coffee collapsed, so did the Rwandan economy. This was reflected in ever growing levels of external debt. In 1985, the country’s total stock of external debt was just over 200% of its export earnings. By 1990, this had grown to 480% (The World Bank Group 2012).

Logically, a pro free-market institution like the IMF, implementing the “Washington consensus” should have said “free the market – eliminate subsidies to Global North agribusiness.”

There are other logics at work, however. The whole systemic issue of why Rwanda had been forced into the unsustainable niche of coffee-export driven growth was never addressed. The question of eliminating subsidies given by the rich countries to Global North agribusiness was never part of the discussion – that form of state intervention is tolerated by the IMF. The IMF insisted that the problems were internal to Rwanda, and in September 1990, it “imposed a structural adjustment program on Rwanda that devalued the Rwandan franc and further impoverished the already devastated Rwandan farmers and workers. The prices of fuel and consumer necessities were increased, and the austerity program imposed by the IMF led to a collapse in the education and health systems” (Robbins 1999, 271–272). The Rwandan state was massively downsized, its capacity to support health and education completely undermined, but the states of the Global North were left untouched, free to dole out billions to multinational agribusinesses.

In addition to impoverishing Rwanda’s people, this IMF imposed structural adjustment did nothing to restart the economy. Above we looked at figures for stock of external debt as a percent of export earnings. By 1991, this was 568%; by 1992, 821%; by 1993, 864%; and in 1994, it peaked at a horrendous 1,890% (The World Bank Group 2012). This didn’t terrify the IMF into rethinking its austerity prescriptions. Apparently, neither did the 1994 genocide, a genocide in large part triggered by these policies.

Finally – with this round of capitalist crisis coming home to roost in Europe – the IMF has succumbed to terror. The terror is not at the human devastation caused by its policies. If that were the case, the feeling of terror would have happened years earlier in Bolivia, Rwanda or Indonesia. The feeling of terror is happening now because the IMF is seeing what its policies are doing to countries in its own heartland, on the continent of Europe. It is looking down the road at the crisis spreading from the small economy of Greece to the medium-size economy of Spain, and then to a G-7 economy like Italy – and it has finally felt the terror and started to rethink its policies.

The Fiscal Multiplier

Lagarde’s public rethinking of the austerity agenda being imposed on Greece and Spain, was triggered by a perceptive question at a press conference, where a reporter asked her about “research that appeared in the World Economic Outlook about fiscal multipliers” (Lagarde 2012). The reporter had taken the time to read the 2012 edition of the IMF’s World Economic Outlook, and get to Box 4.1 on pages 41 to 43. The contents of this box are explosive. Entitled “Are We Underestimating Short-Term Fiscal Multipliers?” it, like Lagarde’s gloss on it, requires a little translation.

The term “fiscal multiplier” is used to describe the effect of government spending on national income. “A multiplier greater than one shows that government spending on national income levels is deemed to have been enhanced” (Investopedia 2012). True to their Washington Consensus ideology, IMF staff reports, prepared to justify the structural adjustment being imposed on Greece and being proposed for Spain, based their recommendations on an assumed fiscal multiplier of 0.5 (International Monetary Fund 2012, 43). This is worth dwelling on. These IMF staff reports were assuming that $1 spent by the government would lead to just 50 cents growth in national income. In other words, government spending was a net drain on economic growth.

Now – if that were true – well then, cut everything, cut it all. If government spending of $1 leads to only 50 cents of income growth, then this is unbelievably wasteful and inefficient. If that is the case, then it would be better to spend nothing, and just give the $1 to the private sector, where that $1 will at least be a $1 increase in income, and not the measly 50 cents the IMF staff were predicting. With this as an assumption, you can see how eager IMF staff would be to slash spending in Greece, Spain and elsewhere.

Except – they know think they were wrong. After doing some more investigation, “results indicate that multipliers have actually been in the 0.9 to 1.7 range since the Great Recession … in today’s environment of substantial economic slack … multipliers may be well above 1” (International Monetary Fund 2012, 43). If that is the case – if the fiscal multiplier is above 1 – then cutting $1 in government spending will reduce national income by more than $1. In other words, cutting $1 billion in government spending will lead to a greater than $1 billion cut in national income, and will accelerate economic decline.

You can see why this is explosive. If this is in fact true, then policy should be for increasing government spending, not cutting it. The IMF document cites a series of studies – and it would benefit from studying them and not just citing them. According to one, written by Michael Woodford, when the fiscal multiplier is in excess of 1, then “welfare increases if government purchases expand to fill the output gap that arises from the inability to lower interest rates” (Woodford 2011, 1).

Lagarde is terrified (see above) because the unemployment levels in Greece and Spain are equivalent to those during the Great Depression. So read on … “Under circumstances like those of the Great Depression … government expenditure multiplier should be larger than one, and may be well above one. … Hence, a case can be made for quite an aggressive increase in government purchases under such circumstances, even taking account of the increased tax distortions required in order to finance the increase in government purchases” (Woodford 2011, 33).

From Keynes to the movements 

This is a very old idea. In the context of another period of rather slack demand – the 1930s Great Depression – John Maynard Keynes organized his most influential work around exactly this notion – the relationship between government expenditure (public investment), national consumption, and thus aggregate employment (Keynes 2010, chap. 10). The irony couldn’t be greater. In the 21st century, sitting in the long shadow of the Great Recession of 2008 and 2009, the vehemently anti-Keynesian Washington Consensus ideologues are slowly, cautiously, stumbling back towards – Keynes.

It won’t be enough. Keynes is a whole lot better than the free market evangelism which has governed public policy in the neoliberal era. But we know from the difficulties the world economy entered into during the Keynesian era itself in the 1960s and 1970s that Mr. Keynes himself did not have all the answers.

Real policy reform will require immersing ourselves in the social movements which crises often generate. The people of Indonesia were not content to be passive objects of IMF, Washington Consensus, experimentation. In 1998 they rose up in a revolution, overthrew the dictator Suharto, and began the long march toward a society based on democracy and social justice. The tin miners who lost their jobs through IMF-imposed shock therapy in Bolivia, went to the coca fields, combined their forces with the rural coca growers (including Evo Morales), formed a powerful social movement, and became part of the revolutionary processes which stopped privatization of water in Bolivia, overthrew successive neoliberal regimes, and led to the installation of Morales as president of the now plurinational state of Bolivia.

The IMF is terrified. On the ground, the Spanish people have a better emotion – outrage. The movement of the indiganados (the outraged) in Spain, the rise of Syriza in Greece – these are some of the elements of the new social movements shaping a response to the IMF as this article is being written.

© 2012 Paul Kellogg


Chossudovsky, Michel. 1998. The Globalization of Poverty and the New World Order. 2nd ed. Halifax: Fernwood Publishing.

ELSTAT. 2012a. Employment-Unemployment. Labour Force (Quarterly) – Timeseries. Athens: Hellenic Statistical Authority.

———. 2012b. Labour Force Survey: April 2012. Athens: Hellenic Statistical Authority.

Eurostat. 2012a. “Harmonised Unemployment Rate by Sex, % (seasonally Adjusted).” Eurostat – Tables, Graphs and Maps Interface (TGM) Table.

———. 2012b. “Unemployment Statistics.” Statistics Explained.

International Monetary Fund. 2012. World Economic Outlook, October 2012 – Coping with High Debt and Sluggish Growth. World Economic and Financial Surveys.

Investopedia. 2012. “Fiscal Multiplier Definition.” Investopedia.

Keynes, John Maynard. 2010. The General Theory of Employment, Interest and Money. Orlando: Signalman Publishing.

Kinnock, Glenys. 2011. “America’s $24bn Subsidy Damages Developing World Cotton Farmers.” Poverty Matters.

Kohl, Benjamin H., and Linda C. Farthing. 2006. Impasse in Bolivia: Neoliberal Hegemony and Popular Resistance. New York: Zed Books.

Lagarde, Christine. 2012. “Transcript of a Press Conference by International Monetary Fund Managing Director Christine Lagarde and First Deputy Managing Director David Lipton.” International Monetary Fund.

Mercola, Dr. 2012. “Do You Have ANY Idea How Absurd U.S. Farm Subsidies Are?” Mercola.com.

Okonski, Kendra. “Who’s Really to Blame for Low Coffee Prices?” International Policy Network.

Robbins, Richard Howard. 1999. Global Problems and the Culture of Capitalism. Boston: Allyn and Bacon.

Stiglitz, Joseph E. 2003. Globalization and Its Discontents. New York: W. W. Norton & Company.

The World Bank Group. 2012. “World Development Indicators (WDI) & Global Development Finance (GDF).”

Walt, Vivienne. 2010. “E.U. Farm Subsidies: Agriculture Benefits Raise Eyebrows.” Time.com.

Williamson, John. 1990. “What Washington Means by Policy Reform.” In Latin American Adjustment How Much Has Happened?, ed. John Williamson. Washington, D.C.: Institute for International Economics.

Woodford, Michael. 2011. “Simple Analytics of the Government Expenditure Multiplier.” American Economic Journal: Macroeconomics 3 (1) (January): 1–35. doi:10.1257/mac.3.1.1.

Zumbrun, Joshua. “Sugar’s Sweet Deal.” Forbes.com.

UNASUR and the Eurozone Crisis

Significant regional integration efforts, independent from the United States, have been among the most striking developments in Latin America and the Caribbean this century. The most ambitious of these projects is CELAC – the Community of Latin American and Caribbean States – founded at a summit in Caracas, Venezuela in December 2011. In conjunction with the Bolivarian Alliance of the Peoples of our America (ALBA) and the Union of South American Nations (UNASUR), there now exist very serious, regionally distinct, alternatives to both the existing Organization of American States (OAS), for decades dominated by the United States, and the now moribund (and also U.S.-dominated) trade agreement, the Free Trade Area of the Americas (FTAA).

The European Union (EU) was for many years a key source of inspiration for regional integration in Latin America and the Caribbean. Understandably then, the current crisis in the EU, particularly in the Eurozone countries, might be expected to give pause to regionalist enthusiasm in Latin America and the Caribbean. However, the fundamental dynamics in the two regional projects are completely different. The EU is trying to build a regional bloc through neoliberal policies. By contrast, the new regionalism in Latin America and the Caribbean has emerged as a challenge to neoliberalism. We can anticipate a continuation of efforts to integrate the economies of Latin America and the Caribbean no matter how the Eurozone crisis plays out.

These are the first two paragraphs of an article published, August 30, in e-International Relations.

Currency Wars and the Privilege of Empire

OCTOBER 23, 2010 – In uncertain times, the headline was soothing – “Secretary Geithner vows not to devalue dollar.”[1] United States Secretary of the Treasury Timothy Geithner was saying, in other words, that if there were to be “currency wars” – competitive devaluations by major economies in attempts to gain trade advantage with their rivals – the United States would not be to blame. Who, then, would be the villain? China, of course. Earlier this year, Democratic Party congressman Tim Murphy sponsored a bill authorizing the United States to impose duties on Chinese imports, made too inexpensive (according to Murphy and most other commentators) by an artificially devalued Chinese currency. “It’s time to deliver a strong message to Beijing on behalf of American manufacturing: Congress will do whatever it takes to protect American jobs.”[2] But the Geithner balm and the Murphy hyperbole are simply matching sides of a deep hypocrisy. For three generations, the United States has leveraged its position as the centre of empire to print dollars with abandon, devalue at will, and “debase” its currency at a rate impossible for any other economy. But the privileges of empire are starting to unravel, and the U.S. economy is wallowing in the consequences of 60 years of irresponsible monetary policy. Emotional attacks on China are simply a cover for problems deeply rooted in the U.S. itself. One part of that is a long history of currency wars, where the U.S. dollar has been used as a weapon in a manner without parallel in the modern world economy. That story has four aspects – Bretton Woods; the Nixon Shock of 1971; Petrodollars; and Quantitative Easing. This article will look at each in turn.

1. “Good as Gold” at Bretton Woods

To get to the first aspect of this story, you have to dial the film back to the restructuring of the world economy out of the ruins of the Second World War. In 1944, as that catastrophe was winding to a close, representatives of 44 allied nations met in Bretton Woods, New Hampshire to try to develop policies to prevent history repeating itself. Prior to 1914, capitalism had by and large been able to develop through exporting its horrors to the Global South – bringing genocide, slavery and the destruction of ancient civilizations to the Americas, Africa and Asia. But from 1914 on, some of those horrors had come home to the heart of the system itself. World wars engulfed the most “civilized” and capitalist powers themselves, first from 1914 to 1918, and then again from 1939 to 1945. Between these two moments of industrialized slaughter was the interlude of the Great Depression – the unprecedented collapse of trade, finance, employment and income, which shattered lives for a decade. It was clear to everyone that these two elements – war and economic collapse – were intimately related, and that to forestall another military catastrophe, deep economic restructuring would be required.

In this context, a once obscure economist emerged into prominence. In 1919, the then 30-something John Maynard Keynes was horrified when the peace treaty imposed by the victorious allies – the Treaty of Versailles – put in place punitive reparations on Germany. Keynes argued that the billions of dollars that were to be stripped out of German society would impoverish and embitter the country, lay the ground for economic difficulties, and for new wars. He captured this in his first major book, The Economic Consequences of the Peace.[3]

By 1944, Keynes was no longer an outsider and critic. This time he was at the table – one of the chief architects of the Bretton Woods’ institutions which were to emerge from this gathering. His ideas were listened to, in part because his warnings in 1919 had been so appallingly confirmed. His argument that economic competition needed to be regulated, that there had to be a central role for the state to mitigate the effects of the boom-bust cycle, and that there had to be institutions which could manage competition at an international level – these ideas were to be taken very seriously, as policy makers everywhere stared back at the horrors which were the alternative.

The Bretton Woods discussions would create the International Monetary Fund (IMF – designed to “administer the international monetary system”) and the International Bank for Reconstruction and Development or World Bank (“initially designed to provide loans for Europe’s post-war reconstruction”).[4]

But two other key goals were not achieved. One has been well-documented. Keynes had wanted an “International Trade Organization” to forestall the vicious trade wars which had broken out in the 1930s. He was not successful on that front. All that could be arrived at was the General Agreement on Tariffs and Trade (GATT), which took until 1995 to evolve from an agreement into an institution in the shape of the World Trade Organization (WTO). The second unrealized objective has received much less attention. It was to establish an “International Clearing Union” (ICU) for use in transactions between countries.[5] The U.S. – enthusiastic backer of much of the Bretton Woods’ discussions – was completely opposed to this. The establishment of an ICU would have sidelined the role of the U.S. dollar in international transactions. Emerging from the war controlling something like half of the world economy, the United States looked forward to the advantages that would accrue to its corporations and government from its new place as the centre of empire. Without an ICU, the U.S. dollar – like the British empire’s pound before it – would almost inevitably become the chief currency for international transactions.

Money is a peculiar thing. It is the necessary link between producers and consumers, employers and workers. It is also something that can be a “store of value.” Accumulate a lot of money, and you can have access to a lot of commodities, or a lot of that most special of commodities, labour power. In the early years of the world economy, precious metals, such as gold and silver, evolved into the material of choice to represent value – scarce enough to be “valuable” in themselves, but abundant enough so they could circulate in sufficient quantities to keep the economy functioning. In states that were sufficiently large and stable, a modification of this system developed. Paper money (probably first used in China more than 1,000 years ago) is essentially a promise that, should the holder so choose, the paper can be exchanged for a certain amount of gold or silver. So precious metals had not disappeared from the equation. They had simply been pushed into the background.

At Bretton Woods, the U.S. argued for and won a particular framework by which money could circulate in the world economy as a whole. It argued that it could guarantee currency stability by a double linkage – world currencies to the U.S. dollar, and the U.S. dollar to gold. Other currencies could price themselves in U.S. dollars, and that would be “good as gold” as the U.S. committed that anyone who wished, could turn in their U.S. dollars in exchange for the real thing – for gold, held at a fixed rate of $35 an ounce.

The establishment of the U.S. dollar as the world’s chief currency for international transactions had some risks. Should everyone with U.S. dollars demand they be exchanged for gold at the same time, the system would be in crisis. But it also held out enormous benefits. A key component of the world economy consists of the international reserves held by each country’s central bank to facilitate economic exchanges between nations. Traditionally, the key component of these reserves was gold. But with the U.S. dollar “good as gold” it became increasingly the practice for central banks to hold U.S. dollars as their international reserve, along with and increasingly in place of gold. The U.S. dollar was not the only such currency. Most central banks hold reserves in several of the different major currencies. But since Bretton Woods, by far the dominant currency held in central banks has been the U.S. dollar. Charts mentioned in this analysis are available at the end of the article. The first chart[6] shows that this remains true into the 21st century. At any one time between 1995 and the present, U.S. dollars represent some 60 to 70 per cent of allocated international reserve holdings throughout the world.[7]

There are some important qualifications to be given to these percentages. First, these figures are provided “on a voluntary basis” from the 140 countries participating in the IMF process which compiles them. Second, not all international reserves are identified. The percentages here are for “allocated” reserves alone. There is a quite large, and growing, portion of international reserves held by central banks which are “unallocated” because the IMF simply does not know what they are. In 1995, 26 per cent of foreign exchange reserves went into this mystical “unallocated” category. By 2010, that had risen to 44 per cent. These qualifications aside, it remains the case that fulfilling the role of internationally recognized “store of value” for international transactions, requires a huge quantity of U.S. dollars, measured in the trillions. The next chart[8] demonstrates this, showing total foreign exchange reserves, total allocated reserves, and total reserves held in U.S. dollars. The amounts are vast (by 2010 more than $8 trillion in total foreign exchange reserves, of which more than $3 trillion in U.S. dollars) and growing.

This was the first, and centrally important, privilege of empire. The United States, alone in the world economy, had partially broken the link between trade deficits and currency decline. Most countries which run large trade deficits, see their currency decline in value. Less relative demand for an economy’s goods means, normally, less relative demand for that country’s currency. But the United States could partially defy that law. Regardless of demand for U.S. goods, there is always a demand for U.S. dollars, as the principle “store of value” for central banks around the world. As long as the U.S. dollar was “good as gold” it could run – and has run – very large trade deficits, without seeing its currency collapse. The annual trade deficits which the U.S. has been running since 1975 are a downward pull on the value of the U.S. dollar. But that has been significantly lessened by the constant demand for the U.S. dollar as a store of value on an international scale.

It is, then, of some interest, what exactly is represented by the large and growing “unallocated” portion of foreign reserves, pictured above. If that represents a hidden move away from the U.S. dollar towards other currencies, then this long love affair between the world’s central banks and the U.S. dollar might be in jeopardy. If and when that love affair ends, and the U.S. dollar starts behaving like a “normal” currency, the consequences will be profound.

2. The Nixon Shock and the Era of Devaluation

So the first, and still important, privilege of empire was to establish the U.S. dollar as “world money.”[9] But empires do not last forever. The second aspect of United States’ currency wars developed in the late 1960s and early 1970s, as the first signs of the relative weakening of the U.S. empire began to reveal themselves.

Part of the background were the U.S. wars in Indochina. From small beginnings under John F. Kennedy, these wars under first Lyndon Johnson and then Richard Nixon, grew into murderous, destructive and hugely expensive affairs. The U.S. had won the right, through Bretton Woods, to print money almost without impunity. But emphasis here has to be put on the word “almost.” The enormous expenses involved in keeping an army of half a million overseas began to put severe strains on the U.S. economy.

The other part of the background had to do with the defeated powers from World War II. Japan and Germany (and with Germany the rest of Europe) had considerably recovered from the destruction of war. Their economies were growing, and they were not burdened with the cost of empire and war as in the United States. Crucially, the recovering European and Japanese economies were running big trade surpluses, and accumulating growing piles of U.S. dollars. Gold on the open market was trading above $35, but the Bretton Woods’ exchange rate system pegged the U.S. dollar to gold at $35 an ounce. Increasingly, central banks, in Europe in particular, were exercising their Bretton Woods right to convert their U.S. dollars for gold – in effect, gaining access to gold below market value. The dangers to the U.S. economy were very clear, as gold fled the country both to pay for imperialist wars and to meet Bretton Woods obligations.

Secretary of the Treasury John Connally, a life-long militarist and hawk, would not, of course blame U.S. foreign policy adventures for the crisis of his country’s economy. But the other half of the equation he saw absolutely clearly. He argued that action was needed “to head off what the Administration believe[d] to be the most important non-military threat to U.S. national security: economic competition from Japan and Western Europe.”[10]

August 15, 1971, Richard Nixon announced a New Economic Policy. In Japan, it became known as the Nixon Shock. That day, the Bretton Woods system broke down. More accurately, the United States walked away from Bretton Woods. Nixon announced that the U.S. would no longer automatically exchange U.S. dollars for gold at $35 an ounce. In effect, he was removing gold as the standard by which currencies were measured, leading to the current system of “floating” exchange rates. The immediate effect was a steep and stunning decline in the value of the U.S. dollar relative to other currencies. This was precisely the intention of the Nixon Shock. As Time magazine reported in 1971: “American officials who once proclaimed the majesty of the dollar now cheer declines in its price on newly freed money markets, because they hold the potential for helping the U.S. balance of payments.”[11] This was devaluation on a scale about which China can only dream. And it is a devaluation which has continued in the almost forty years since.

A previous article examined some of the statistical challenges in measuring the relative strength of the U.S. dollar.[12] The most common database by which to compare the relative strength of currencies begins in 1973. In other words, it excludes the impact of the Nixon Shock, and in doing so “flattens” the picture, showing only a modest downward trend for the U.S. dollar. But a database with a more complete set of statistics, stretching from just before the Nixon Shock to the present, can be put together from other sources – with figures for the U.S. dollar, the historically most important currency in Asia (the Japanese yen) and the “euromark” (a composite notional currency comprised of the German mark until 1998 and the euro from 1999 on). The result, visible in the third chart[13], is very clear. The U.S. dollar is approximately 1/3 of what it was in 1971, compared to the yen and the “euromark,” and its trajectory is without question down. The reasons for this long-term slide relative to other major currencies are for another paper. But the fact of the weakening of the U.S. dollar is incontrovertible.

It is worthwhile at this point in the analysis to marvel at the arrogance of U.S. policy makers. In 1944, a system to stabilize the world economy was put in place, which had the side benefit for the United States, of privileging its currency as the store of value for central banks around the world, allowing United States’ policy makers to print money almost at will. When this capacity to print money out of proportion to the needs of the economy, in particular to finance murderous wars in Indochina, started to put strains on the system, the United States simply walked away from its obligations. It left the Bretton Woods’ monetary system in ruins, and imposed on the rest of the world a remarkably steep devaluation of its currency, making U.S. produced goods more competitive, and those produced in Japan and Europe less so. We could end the story at this point. The evidence of U.S. manipulation of the world currency system to its advantage is overwhelming, and has a very impressive pedigree. But the story is only half done. There are two other key aspects to the “privilege of empire” still to be examined.

3. Petrodollars: the fuel of empire

The collapse of Bretton Woods led to a short-term devaluation of the US dollar. Other things being equal, it is conceivable that this devaluation could have accelerated into a collapse. However, the death of Bretton Woods was followed by another era in the history of the dollar – that of the Petrodollar. In the early 1970s, the Organization of Petroleum Exporting Countries (OPEC) made the historic decision to invoice the trade of oil in dollars. In part under the direction of then Secretary of State Henry Kissinger, the United States and Saudi Arabia in 1974 launched the “United States – Saudi Arabian Joint Commission on Economic Cooperation.” The key decision arising from this commission was for Saudi Arabia to sell its oil in U.S. dollars. “As the largest OPEC producer, the Saudis used their strong influence in OPEC to persuade other members to follow suit; and they did. In 1975, OPEC announced its decision to invoice oil sales in dollars.”[14]

This meant that there was another reason for every nation to hoard U.S. dollars, whether buying goods from the U.S. or not. To buy oil, you needed U.S. dollars, something which set both oil and the U.S. dollar apart from their equivalents in the world economy. To buy apples produced in Canada, someone outside of Canada in effect has to buy Canadian dollars at the same time. The apples are priced and traded in local (Canadian) currency, so a demand for apples implies a demand for the Canadian currency. But not with oil. To buy oil from Saudi Arabia – or Iran, or Venezuela – you didn’t need access to the currencies of those nations, but rather to U.S. dollars. Increasing demand for oil from these producers, then, meant perversely increasing demand for U.S. dollars. Bessma Momani summed it up as follows.

Since the mid-1970s, the value of the United States’ dollar has been upheld by a number of domestic and international factors. An often underestimated factor is that oil is sold and traded in US dollars. Arguably, having the dollar used as the ‘main invoice currency’ for oil makes the trade of this vital resource the new post-Bretton Woods’ Fort Knox guarantee of the dollar.[15]

Nixon broke the link with gold in 1971, and at first glance that should have led to a very steep and long term decline in demand for the U.S. dollar. But because of the pivotal role of the U.S. dollar in the international oil market – the market for the one indispensable commodity for world capitalism – the decline was mitigated. There remained constant demand for the U.S. dollar because of permanent and rising demand for oil.

The United States again benefited from the “privilege of empire.” They could slow the decline of the dollar because of their still dominant position in the world economy. With a resulting capacity to print dollars far in excess of that of other nations, the United States has been able to continue financing enormously expensive wars abroad, while at the same time running large and growing trade deficits at home. No other country in the world has this kind of capacity.

There were other perverse effects from the creation of a world awash in petrodollars. The oil exporting countries amassed huge quantities of these dollars, far in excess of anything they could spend internally. In the late 1970s and the early 1980s, much of these excess funds “were saved and deposited with banks in industrial countries,” in particular in banks in the United States. “The banks, in turn, lent on a large part of these funds to emerging economies, especially in Latin America. When the oil boom subsided in the early 1980s, bank flows to emerging markets reversed sharply, triggering the Latin American debt crisis.”[16]

That is how the antiseptic language of an IMF working paper outlines the issue. It could be restated as follows. Billions of dollars left the United States, Europe and Japan to pay for oil imports in the 1970s and 1980s. The billions of dollars received by OPEC countries were far in excess of any local consumption and development possibilities (in large part because these countries had distorted development patterns after decades of oppression by the rich countries of the Global North.) So in turn, these billions flowed back to the Global North in the form of massive deposits in particular into U.S., banks. “Nearly 500 billion petrodollars were recycled from oil producers with a capital surplus to countries with trade deficits.”[17]

It didn’t end there. The same processes driving this flow of money – the spike in the price of oil in the 1970s – made it very difficult for developing countries in Latin America to finance their industrialization. They had “balance of payments” problems. Under pressure from the IMF, these countries were encouraged to borrow the petrodollars sitting in the vaults of the Global North banks. These petrodollars were in effect ” ‘recycled’ through the IMF”[18] in the form of loans to countries in the Global South from the excess money sitting in the banks of the Global North. This was aggressively marketed as an alternative to the nationalism and state-led development strategies of the 1960s and early 1970s. When interest rates spiked in the 1980s, the loans incurred became unsustainable, and the economies of Latin America spiraled into a deep crisis.

Billions of dollars slosh through the world economy, enriching states and financial institutions in the Global North, creating short-term frenzies for debt-financed development, and laying the basis for long-term crisis in the developing world. The petrodollar aspect of U.S.-based currency wars is an issue for the poorest countries of the world, not just its richest.

The benefits of the Petrodollar era might be beginning to unravel for the United States. Bessma Momani concludes that it is unlikely that in the short term, the OPEC countries will end their use of the U.S. dollar. But, should the U.S. dollar continue the long decline outlined earlier in this article, there will be increasing incentives to diversify away and into other “stores of value” such as the euro. The consequences for the U.S. would be very serious.

4. Quantitative Easing – Dirty Deeds Done Dirt Cheap[19]

The long decline of the U.S. dollar documented earlier – a decline that is ongoing – is one reflection of the growing relative weakness of the U.S. in the context of the world economy as a whole. This growing weakness was revealed by the harsh impact of the most recent recession on the U.S. economy, one felt much more strongly there than in the other major economies. In the face of this deepest recession in a generation, the fourth and final aspect of U.S.-based currency wars came to the fore. It is without doubt the strangest of any that we have looked at, not the least because of its mysterious name, “Quantitative Easing.”

There are several ways of defining Quantitative Easing. According to the Central Bank of the United Kingdom, it is a way of injecting money into the economy “by purchasing financial assets from the private sector.” How are these assets paid for? Why “with new central bank money.” But where does that money come from? Well, “the Bank can create new money electronically by increasing the balance on a reserve account.”[20] And that’s it. New money is just simply, created. If your balance is $1,000, add a “zero” and it’s $10,000, new money created “electronically by increasing the balance on a reserve account.” Quantitative easing’s “effect is the same as printing money in vast quantities, but without ever turning on the printing presses.”[21] A skeptic would argue that the obscure term “Quantitative Easing” was chosen as less likely to arouse suspicion than a more transparent name such as “Harry Potter money creation.”

When this was policy in Japan in the wake of the deep recession of the early 1990s, it was derided in the U.S. press as something “which essentially stuffed Japanese banks with cash to help them write off huge bad loans accumulated during the 1990’s.”[22] But since 2008, this policy of creating money from nothing has been embraced with passion in the United States. In 2008, the U.S. central bank (the Federal Reserve) “bought $1.7 trillion -worth of Treasury and mortgage bonds with newly created money.”[23] That $1.7 trillion did not exist. It was brought into existence electronically, transferred to the books of financial institutions, in the hopes of pushing that newly minted money into the economy and stimulating growth. That program is now over. There is, however, every prospect that another round of Quantitative Easing will be announced in the coming weeks, with anywhere from $1 trillion to $2 trillion being created electronically to “stuff U.S. banks with cash to help them write off huge bad loans” accumulated in the last 10 years, to paraphrase the sarcastic analysis of Japan’s similar policies.

Whether or not this will stimulate growth is a matter for debate. There are, however, two things we know it will accomplish. First, it will in the long term, accelerate the decline of the U.S. dollar relative to other currencies. Second, as this flood of money depresses interest rates in the U.S., it will put upward pressure on other currencies “as investors rush elsewhere, especially into emerging economies, in search of higher yields.”[24]

Several conclusions need to be drawn here. First and most importantly, there are absolutely no grounds for Timothy Geithner or any other U.S. official to point the finger elsewhere – at China for instance – and try to fix blame for the initiation of currency wars. From blocking the creation of ICUs at Bretton Woods in 1944, to the Nixon Shock of 1971, to the Petrodollar era from 1974 to the present, the United States has demonstrated an unprecedented willingness to intervene in and artificially skew the world’s money markets. With its adoption of Quantitative Easing, it has taken this to a new level, a “shock and awe” approach to the currency wars that makes any actions by China pale in comparison.

Second, the issue of monetary policy cannot be looked at from a strictly economic point of view, but has to be examined with one eye on the economy and the other on politics. The entire economic history of the U.S. dollar is incomprehensible without the political history of U.S. imperialism. The deep distortions in the international monetary system are a reflection of the “privileges of empire” abused by the United States. The decline of that empire and the slow ending of those privileges promise to make the United States pay dearly for these distortions, but only after having wreaked havoc on much of the rest of the world.

But there is another conclusion that needs to be taken seriously, and it is something that can only be broached in this article. Conservative analysts see the history outlined above, and long nostalgically for a return to the gold standard. This is a reactionary and impossible utopia. There are just over 30,000 tonnes of gold held in official reserves around the world.[25] But even at the current high rate of $1250 an ounce, the total value of these reserves would be just over $1 trillion. The world economy is measured in tens of trillions of dollars. Any attempt to anchor the transactions of the world economy to the inflexible and slow-growing physical accumulation of gold that exists in the world would be impossible. A gold standard can simply not allow for the reflection of value in the money supply that is necessary for a modern economy to function.

However, there is an important problem, suggested by the picture sketched out here, that needs to be addressed. The break from the gold standard towards the U.S. dollar, the musing in the 1940s about an ICU, the Harry Potter economics behind quantitative easing – all are the chaotic expressions of attempts to address a very real issue. The value of the goods and services produced in the world need to be measured, reflected abstractly in some unit of measurement, and then that information used to determine investment, production and consumption decisions. The problem is not the attempt at addressing this issue. The problem is, that in a world capitalist system, this attempt is corrupted by private greed, imperialist domination of the Global South, and the militarized designs of the hegemonic state, which means that instead of a reasoned and thought-out approach, we get the dangerous chaos and instability outlined here.

Analytically, this demands taking the issue of money very seriously in anti-capitalist analysis. Marx’s brief comments on it 150 years ago are interesting. Earlier, this article used his term “world money” – money set aside for transactions between national economies in the context of the world economy. Marx argued that it is only here, “in the markets of the world that money acquires to the full extent the character of the commodity whose bodily form is also the immediate social incarnation of human labour in the abstract. Its real mode of existence in this sphere adequately corresponds to its ideal concept.”[26] The emergence of world money under capitalism takes a distorted, fetishized form. But it nonetheless represents something real – a reaching towards an adequate mechanism by which to measure the products of our labour, and redistribute them.

This process is controlled by bankers, industrialists, generals and politicians. Until it is brought under the democratic control of the vast majority – the workers in workplaces, fields and homes who produce all the wealth of the system – this money-form of capital will control us, and throw us into periodic crises which wreck economies and lives.

Another G20 Summit: The New Club of Hostile Brothers
Message to the U.S. – Blame the wars, not China

Charts referenced in the article

(c) 2010 Paul Kellogg

Publishing History

This article was published as Currency wars and the privilege of empire,Links, 23 October.


[1] Gennady Sheyner. “Secretary Geithner vows not to devalue dollar.” Palo Alto Online News. 18 October, 2010.
[2] Andrew Clark. “US politicians threaten trade war with China.” guardian.co.uk. 29 September, 2010.
[3] John Maynard Keynes. The Economic Consequences of the Peace. Charleston, SC: BiblioLife, 1995 (first published 1919). Also available online.
[4] Manfred B. Steger. Globalization: A Very Short Introduction. New York: Oxford University Press, 2009: 39.
[5] George Monbiot. “Clearing Up This Mess.” Monbiot.com. 18 November, 2008.
[6] IMF. “Currency Composition of Official Foreign Exchange Reserves (COFER).” www.imf.org. 30 September, 2010. Accessed 19 October, 2010.
[7] Prior to 1999, the euro did not exist, so figures here for 1995 through to 1998 are for a “euro equivalent” – the sum of the old Deutsche mark, the French franc, the Netherlands guilder and the European Currency Unit (ECU), all of which have ceased to exist with the launch of the euro.
[8] IMF. “Currency Composition of Official Foreign Exchange Reserves (COFER).” www.imf.org. 30 September, 2010. Accessed 19 October, 2010.
[9] The concept of “World Money” (sometimes translated as “Universal Money” or “Money of the world”) was developed by Karl Marx in the first volume of Capital (Karl Marx. Capital, Volume I. In Karl Marx and Frederick Engels. Collected Works, Volume 35. New York: International Publishers, 1996: 153-156. Available online). The importance of this concept has been underlined in the contemporary period by David McNally in “From Financial Crisis to World Slump: Accumulation, Financialization, and the Global Slowdown.” 2008.
[10] Cited in Bruce Muirhead. “From Special Relationship to Third Option: Canada, the U.S., and the Nixon Shock.” American Review of Canadian Studies, 34:3, Autumn 2004: 439.
[11] “The Economy: Changing the World’s Money.” Time. 4 October, 1971.
[12] See Paul Kellogg. “The Septembers of Neoliberalism.” PolEcon.net, 29 September, 2008.
[13] Derived from Oanda.com. Accessed 19 October, 2010.
[14] Bessma Momani. “Gulf Cooperation Council Oil Exporters and the Future of the Dollar.” New Political Economy, Vol. 13, No. 3, September 2008: 297.
[15] Momani: 293.
[16] Johannes Wiegand, “Bank Recycling of Petro Dollars to Emerging Market Economies During the Current Oil Price Boom.” IMF Working Paper WP/08/180. July 2008: 4.
[17] David E. Spiro. The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets. New York: Cornell University Press, 1999: 1.
[18] Saleh M. Nsouli. “Petrodollar Recycling And Global Imbalances.” www.imf.org. 23-24 March, 2006.
[19] Apologies to AC/DC. “Dirty Deeds Done Dirt Cheap.” 1976.
[20] James Benford et. al. “Quantitative easing.” Quarterly Bulletin, Bank of England, 2009 Q2: 91.
[21] “Quantitative Easing.” The New York Times. 21 October, 2010.
[22] Martin Fackler. “Economists Are Watchful as Tokyo Ends Loose-Money Policy.” The New York Times. 9 March, 2006.
[23] “It’s all up to the Fed.” The Economist. 14 October, 2010.
[24] “How to stop a currency war.” The Economist. 14 October, 2010.
[25] World Gold Council. “World Official Gold Holdings.” September 2010.
[26] Marx: 153.

Anti-Tory Then and Anti-Tory Now: ‘Power in the Darkness’

MAY 11, 2010 – So David Cameron is Britain’s new prime minister. His accession to 10 Downing Street is reminiscent of another May election when the smug elite organized in the Conservative Party outpolled the Labour Party. May 3, 1979, Margaret Thatcher defeated James Callaghan. She would in the 1980s, partner up with her U.S. equivalent – former B-movie Hollywood actor, Ronald Reagan – the two becoming symbolic of what we now call the neo-liberal revolution. Britain in the 1970s, however, did not just give the world neo-liberalism. It also produced cultures of resistance. And as the election results rolled in May 6 and 7, the tunes from one part of that resistance kept coming to mind. Power in the Darkness, the Tom Robinson Band’s breakthrough 1978 album, contained song after song which became anthems of resistance for young activists in the Thatcher/Reagan years. There are some parallels between 2010 and 1979, some important differences, and a new relevance for a thirty-two year old album.

Both 1979 and 2010 marked the end of distinct eras for the Labour Party. In 1997, 13 years before Brown’s humiliation, “New Labour” led by Tony Blair had thrown out the hated Tories, getting the support of more than 13.5 million voters in the U.K. Thirteen years later, Gordon Brown’s vote total came in almost five million votes below that figure.[1] Thirteen years of Blairism and almost a decade of war in Central Asia and the Middle East had seen a massive haemorrhaging of Labour Party support.

In the 1960s, 1970s and early 1980s, we can see some similarities. Harold Wilson had captured office in 1964 with just over 12 million votes, increasing that to 13 million in 1966. Labour did not rule without interruption in the coming years – there was the Ted Heath interregnum from 1970 to 1974 – but Labour was the dominant party during that 15-year period. When Labour lost to Thatcher in 1979, 1.5 million of those 1966 votes had melted away. By 1983, in Labour’s second loss to Thatcher, support for the party had disastrously collapsed to under 8.5 million – 3.5 million fewer than the 1966 peak. That terrible performance in the 1983 election was called a crisis for British social democracy. The sobering news for Labour supporters in 2010, is that Gordon Brown’s 8.6 million votes sit only marginally above the disastrous showing in 1983. It is in fact, a much worse showing, as there are 10 million more voters in Britain in 2010 than there were in the mid-1960s.

But if there has been a loss of millions from the base of the Labour Party, all is not well with its chief rival – the Tories. From Thatcher’s first election in 1979, until John Major’s victory in 1992, the Tories were always able to muster more than 13 million votes at the polls – in the 1992 election, the figure actually topped 14 million. David Cameron’s Tories, by comparison, did very poorly. In spite of the steep decline of Labour, they failed to win a majority, polling just over 10.5 million, well down from Thatcher-era Tory support. We gave that earlier era the nickname “Thatcherism.” As of this writing, David Cameron has a ways to go before he gets his name attached to the current political era in the U.K.

The combination of deep demoralization with Labour and an ideological assertion of free-market dogma made the 1980s a grim era for politics in Britain. But, while there are similarities, you cannot draw direct parallels with 2010. Labour’s policies have created demoralization, but the disaffection with New Labour’s pro-market policies and the long shadow of the Great Recession make a strong re-assertion of free-market dogmatism difficult indeed. The post-election landscape is much more nuanced. Among the elements of this landscape are an increased fragmentation, a marginal increase in interest in the “third party” (the actually very old Liberal-Democrats, who in spite of all the hype only received 900,000 more votes than in 2005), and a withdrawal by thousands from engagement with the electoral process. In every election from 1966 until 1997, turnout at the polls in British general elections was always above 70 per cent, topping out at above 78 percent in the first election of 1974 (there were two in that turbulent year). Such figures now are a distant memory. The 1997 election was a harbinger of this, with turnout coming in at just 71 percent “the lowest for 62 years.”[2] In 2001, participation fell to just 59 percent, recovering only slightly in 2005 (61 per cent) and 2010 (65 per cent). The reaction by millions to having their 1997 anti-Tory hopes dashed, has been to stay away from the polls altogether.

Another important element in the landscape is something that did not happen in the Thatcher era – the emergence in the 21st century of serious left electoral alternatives to Labour. Not surprisingly, this has been a difficult project. For millions of working people, supporting Labour has for generations been the only realistic means of challenging the party of the bosses. To indicate that another such alternative exists, and not just as a token, was always going to be a challenge. However mixed the record, it marks an important advance on the 1970s and 1980s.

In Scotland, it was the Scottish Socialist Party (SSP) which first gathered international attention. In 2001 it was a factor in all 72 constituencies in Scotland, averaging over 1,000 votes in each. In 2005 it did less well, but still could poll 43,514 votes in 58 constituencies – an average of 750 per candidate.

In the U.K. as a whole, the 2001 election saw the emergence of the Socialist Alliance. It stood candidates in 98 constituencies in 2001, and garnered 57,553 votes, an average of 587 per constituency. In 2005, the place of the Alliance was taken by Respect, a party deeply rooted in the mass anti-war movement of 2003 and 2004. George Galloway – exiled from New Labour because of his opposition to the war in Iraq – became the standard-bearer for the new party, and his 2005 election as a Respect candidate in the London constituency Bethnal Green and Bow was a defining moment. His 15,800 votes gave him a narrow victory over Labour – and gave the anti-war movement a voice in the House of Commons. This left-wing anti-war vote was not simply a vote for one prominent individual. Salma Yaqoob came second in her Birmingham constituency with over 10,000 votes. In total, in 26 constituencies, Respect received 68,094 votes, or an average of 2,619 per constituency.

Lost in the coverage of the 2010 election is the fact that the electoral response to these left-of-Labour forces – though fragmented into different components – was comparable to the response in 2005. The best result was achieved by Caroline Lucas, a left-wing member of the Green Party, who became that party’s first sitting MP gathering over 16,000 votes in the constituency of Brighton Pavilion. Respect was able to stand candidates in eleven constituencies winning 33,251 votes in total, averaging 3,023 votes per candidate. Galloway came third with over 8,000 votes in the London constituency of Poplar and Limehouse; Abol Miah also polled above 8,000 coming third in Galloway’s old constituency of Bethnal Green and Bow; and Yaqoob actually won 2,000 votes more than in 2005, coming in second in Birmingham Hall Green. The Trade Unionist and Socialist Coalition (TUSC) stood candidates in 42 constituencies, winning 12,275 votes – an average of 292 per constituency. The SSP, while much reduced from years past, still managed to field 10 candidates, each receiving an average of 316 votes.

The attempt to build a left-of-Labour alternative takes on heightened importance when we shift our gaze to the right of the political spectrum. There is a far-right section of the British political landscape that has been steadily and stealthily making headway in the shape of the British National Party – this decade’s organizational hiding place for the racist right in the U.K.

It is true that the BNP failed to make the breakthrough for which its more naive supporters had hoped. In the London seat of Barking, BNP leader Nick Griffin received a humiliating 18,000 fewer votes than victorious Labour Party candidate Margaret Hodge. Hodge claimed to “have not just beaten” Nick Griffin but to “have smashed the extreme right.”[3] Excellent as it is that Hodge humiliated Griffin, her analysis has to be challenged.

The BNP cannot be smashed solely through an accumulation of votes for a party which ruled in the manner Blair/Brown New Labour. As a cabinet minister in both Tony Blair’s and Gordon Brown’s cabinets, Hodge was complicit in the Blairist New Labour project. She was reported to have distanced herself from Blair’s war on Iraq in 2006, but instead of embracing that criticism and making herself part of the anti-Blair left, she insisted she had been misquoted.[4] It is impossible to “smash” the BNP while refusing to break openly from the wars which have fuelled Islamophobia – the anti-Arab racism that has made all forms of racism – and with it the BNP – a more legitimate factor in British politics.

What Hodge has to confront is that even though the BNP did not make its hoped for breakthrough, it was a visible presence across the country, winning more than half a million votes – an average of more than 2,000 per candidate – and representing by far the highest vote total achieved by the racist right in Britain in modern history. The BNP’s 2010 results are considerably up from its 192,745 votes in 2005 and 47,129 in 2001 – and higher than anything the noxious National Front (the 1970s version of the BNP) was able to achieve, the NF’s greatest success coming in 1979 when it captured 191,719 votes. Labour Party supporters need to soberly assess the fact that the high water mark for both of these far-right parties came after years of rule by Labour. The mass demoralization and fragmentation that arises from social-democratic attacks on its own base is the seed bed on which such politics can grow.

The last and most important issue in the comparison between the two eras is inherently the most difficult properly to assess – the level of class struggle. Whereas electoral politics can be mapped through the ebbs and flows of voting results and electoral turnouts, class struggle has no such precise indicators. There is a complex relationship between ideas, organization, confidence and economic conditions which go into what Karl Marx and Frederick Engels called the motor force of history – the struggle between classes.

Without question there has been mass struggle. We have seen huge political mobilizations in Britain and around the world in the 21st century. In Britain, the most impressive of these were the mobilizations of the movement against the war in Iraq. The millions who again and again took to the streets in London, made “Hyde Park” into a verb in some quarters. To “Hyde Park” meant to oppose the war in the heart of imperialism itself.

But a demonstration is not a strike – and the beating heart of resistance to the system, which ultimately sustains all other forms of resistance, is the willingness of workers through their own organizations, to directly challenge their employers and the state. An imperfect, but indispensable, measure of this willingness, comes from the statistics on strikes and lockouts that are produced by governments everywhere. We know in North America that strike levels in the 21st century are much reduced from any of the last three decades in the 20th century. A similar situation exists in Britain.

Tom Robinson anticipated something when – in 1978 – he came out with his song “Winter of ’79.” In terms of workers involved in workplace actions or strikes, the 1978-79 Winter of Discontent resulted in 1979 being the peak of the 1970’s strike wave, with some four and a half million workers during the year being involved in some kind of workplace action.[5] In the years which preceded that confrontational winter, it was a regular occurrence for there to be one million or more workers involved in strike action during any 12 month period. Those levels of activity sustained themselves through the bitter first half of the 1980s, which culminated in the great miners’ strike of 1984-1985. But from the mid-1980s through the entirety of the 1990s, strike activity was much lower than in the preceding generation.

Charts accompanying this analysis can be found at the end of the article. The contrast captured in the first chart is striking. This century, there has been a return in some years to strike levels of the late 1980s – but nowhere near the peaks achieved in the 1970s. Throughout the entirety of the decade of the 1990s and the first eight years of the 21st century, there has not been one year where one million workers have been involved in strike activity. In many years the figure has been below 300,000; in 1998 and 2005 the figure fell below 100,000. A generation of trade unionists has grown up with much less experience on the picket line than the generation which came before.

When measured as “Days not Worked” because of workplace action (as does the second chart), the picture is even more clear. Through the 1970s and into the months of the miners’ strike, three great waves puncture the graph – with more than 20 million, and then twice between 25 and 30 million, days not worked in the course of a year because of workplace actions. However, the impact of the defeat of the miners’ strike is plain to see in the years since. Through the 1990s and into the 21st century, the number of days not worked due to workplace actions has fallen to extremely low levels when compared with the 1970s and 1980s.

The big mobilizations against the war have to be seen in this context. They were part of a magnificent political upturn by thousands who were willing to take action against traditional social democracy. But here, the analysis sketched out by the late Tony Cliff describing an earlier period, has to be taken extremely seriously. In a 1996 interview he analyzed the movement associated with Tony Benn and the Labour Party Left in the early 1980s.

The problem was, people flocked to Benn in 1981 as a political solution when the industrial struggle was going down – but you cannot have a political upturn indefinitely at a time of industrial downturn. This expressed itself in interesting ways but the long term outcome was passivity. There was struggle in the 1980s. It was not like the 1970s but there were big struggles. The Labour left never organised centrally around them. It remained basically electoral, and that meant it was passive. If you are passive, you disintegrate. That’s why today there is demoralisation and passivity.[6]

Cliff uses the language of an earlier generation – subsuming all workplace actions under the term “industrial” – but his analysis remains otherwise, strikingly relevant. We have seen, in Britain and elsewhere in the Global North, big political upturns associated with movements against war and against corporate globalization. But these movements have yet to find a sustained echo in the struggle between capital and labour, at least as reflected in strike statistics. If the struggle between capital and labour is the central struggle of the capitalist system, then when that level is at a low ebb, it is going to have an impact on every other form of resistance. If this is true, the decline of the anti-war movement from its heights in 2003 should not be seen as the failure of that movement, but rather understood as a reflection of the very low level of workplace struggle in society as a whole.

Understanding the class struggle context in which we are operating is important. Until it turns upwards, it will be difficult to sustain a big breakthrough to the left. We have seen recurring upswells in radicalization – in particular, against corporate globalization at the turn of the century and against war in the years that followed. But until such radicalizations gain traction and find a reflection in the economic struggle against capital, they will inevitably be prone to fragmentation and decline.

This is not an excuse to therefore do nothing. “If you are passive you disintegrate.” The situation in Britain will be no different in this regard, to the situation in other countries. The future left alternative to social democracy everywhere will be built from the local struggles against racism, against the cuts, against global warming, against war and imperialism – even if these struggles are happening at a lower ebb, with fewer numbers, with less generalization, and at a slower pace than we had hoped. It is in these local struggles that a new generation of anti-capitalists is finding its voice and developing capacity.

There is a final reason for taking seriously the level of class struggle. If we know that the reason we are having difficulties is not because of the personal failings of this or that individual, this or that organization, but because of the complicated circumstances in which we operate – then we will develop the patience to minimize differences and maximize unity. That unity is not an optional extra. In Britain, the wreckage left behind by 13 years of Labour in office makes plain, again, that social democracy is no alternative to capitalism. The danger of disunity is starkly revealed by the insidious presence of forces like the BNP.

TRB looked out at the landscape of the late 1970s – at the racism of the NF, at the betrayals of Labour, at the threat of the Tories, at bigotry, sexism and anti-gay politics – and sang out “We ain’t gonna take it.” It’s not a full program of resistance. It wasn’t meant to be. But it was a pretty good song, a pretty good place to start in that era, and a timely reminder of what we face today.

Prejudice poison
Polluting this land
I’m a middle-class kiddie
But I know where I stand
We got brothers in Brixton
Backs to the wall
Bigots on the backlash
Divided we fall

Women with children
Have to carry the can
Till they lose them in divorce courts
To some pig of a man
We got Benyon and Whitehouse
Trying to get us stitched
Cos abortion and a gay scene
Only meant for the rich

Sisters and brothers
What have we done
We’re fighting each other
Instead of the Front
Better get it together
Big trouble to come
And the odds are against us
About twenty to one

But we ain’t gonna take it
Ain’t gonna take it
They’re keeping us under
But we ain’t gonna take it no more

Ain’t Gonna Take it

Glad to be Gay

Don’t Take No for an Answer

Up Against the Wall

Grey Cortina

2 4 6 8 Motorway

Charts referenced in the article

© 2010 Paul Kellogg

Publishing History

This article was published as Anti-Tory then and Anti-Tory now.” The Bullet, 14 May


[1] Voting, participation and other election statistics cited in this article are compiled from: “Election 2010: National Results” www.bbc.co.uk; The Electoral Commission, “Election 2005: constituencies, candidates and results,” March 2006 and “Election 2001: The Official Results,” (London: Politico’s Publishing, 2001): “1997 General Election Result,” “General Election, 9th April 1992,” “General Election, 11th June 1987,” “General election, 9th June 1983,” and “General Election Results 1885-1979,” www. election.demon.co.uk
[2] “The 1997 General Election,” www.historylearningsite.co.uk
[3] Cited in Matthew Taylor, “BNP setbacks put Nick Griffin under pressure,” www.guardian.co.uk, May 7, 2010
[4] “Minister ‘attacks Iraq mistake,” www.bbc.co.uk, Nov. 17, 2006
[5] Labour dispute statistics taken from International Labour Organization, “LABORSTA Labour Statistics Database,” http://laborsta.ilo.org; and Office for National Statistics, “Labour Market Statistics: Labour Disputes: Summary,” www.statistics.gov.uk
[6] Tony Cliff, “Labour’s crisis and the revolutionary alternative,” Socialist Review 202, November 1996
[7] Tom Robinson Band, “Ain’t Gonna Take It,” Power In The Darkness, 1978

Shed no tears for the SPP

Finally it has been publicly (if quietly) acknowledged that the so-called “Security and Prosperity Partnership of North America” (SPP) is no more. Stuart Trew of the Council of Canadians drew our attention to the obituary, finally posted on the official SPP site.[1] Truth be told, the SPP has been dead for a couple of years. The following obituary was written in October, 2007[2] – and if you ask yourself why this death been kept so secret, you open the door to many insights into the current impasse of neoliberalism.

OCTOBER 13, 2007 – In an extraordinary article, published in The Globe and Mail, long-time Globe columnist John Ibbitson declared that, according to the Trilateral Commission, the Security and Prosperity Partnership (SPP) “is defunct”.[3]

What a remarkable statement. It was just August of this year that thousands demonstrated in Ottawa and Montebello, Quebec, against the SPP summit. The anti-SPP movement rightly identified that the SPP was trying to codify the neoliberal assault on social services, wages and the environment, an assault that has been a hallmark of governments in the west since the 1980s.

Some are seeing the announced death of the SPP as a smokescreen. But we should take the report quite seriously. The Trilateral Commission, founded in 1973 by one of the biggest of the big capitalists – David Rockefeller – along with longtime adviser to U.S. imperialism, Zbigniew Brzezinski[4] – has been an important think tank for world capitalism for more than 30 years.

It is possible that the news out of the Trilateral Commission reflects the other aspect of the SPP – that its announcement, in 2005 was not just an attempt to continue the neoliberal assault, but also an attempt to save face after the collapse of the Free Trade Area of the Americas (FTAA).

2005, the year of the SPP’s birth, was after all the same year the FTAA was supposed to come into effect. The FTAA was designed to be an institutional embodiment of the neoliberalism held so dear by successive U.S. and Canadian administrations – a neoliberal hemisphere under U.S. hegemony.

But the FTAA was made impossible with the rise of mass radical movements throughout the south of our hemisphere. The crucial turning point was the April 2002 attempted coup against the radical nationalist government of Hugo Chávez in Venezuela.

Chávez had been the only head of state at the FTAA summit in Quebec City in 2001, to oppose the project. Eliminating him from the scene would clear the way for the FTAA steamroller. But one million of the poor masses in Caracas made that impossible when they surrounded the presidential palace, forced a split in the armed forces, and forced the coup leaders to back down.

That opened the floodgates to a massive upsurge in radical movements in South America, including the election of Evo Morales in Bolivia, and the creation of the Bolivarian Alternative for the Americas (ALBA)[5] as an explicitly anti-neoliberal alternative to the FTAA.[6]

The FTAA was the real prize sought after by the U.S. and Canadian governments, and since its demise, they have been unsure of which way to turn in their attempt to pursue their agenda. John Ibbitson says that the reported demise of the SPP “is very bad news.” He is wrong. It is a sign of confusion and disorientation at the very centres of power in the leading capitalist countries of our hemisphere – the U.S. and Canada.

We need to take advantage of this confusion, and build movements in solidarity with the popular forces in the Global South, forces which have begun to carve out an alternative to neoliberalism.

© 2009 Paul Kellogg


[1] See Stuart Trew, “The SPP is dead, so where’s the champagne?rabble.ca, August 19, 2009 and “SPP.gov: A North American Partnership
[2] Paul Kellogg, “Is the SPP Dead?” in Paul Kellogg, PolEconJournal 2001-2007 (Toronto: authors’ collection), October 13, 2007
[3] John Ibbitson, “Say goodbye to North America’s special partnership,” The Globe and Mail, October 10, 2007, p. A.21
[4] Holly Sklar, “Trilateralism: Managing Dependence And Democracy – An Overview,” in Holly Sklar, ed., Trilateralism. The Trilateral Commission and Elite Planning for World Management (Montreal: Black Rose Books, 1980), pp. 1-2
[5] Since renamed “Bolivarian Alliance for Our Americas,” see “ALBA changes its name to Alliance,” ACN, Cuban News Agency, June 25, 2009
[6] Paul Kellogg, “Regional Integration in Latin America: Dawn of an Alternative to Neoliberalism?” in New Political Science, Volume 29, Number 2, June 2007, pp. 187-209

Harper’s Tories: Attacking Quebec to Save Neoliberalism

(Article 1 of 4) Stephen Harper won a seven week reprieve December 4, the Governor-General granting his request to prorogue Parliament until January 26. But the events of the past week have pushed him into a corner and he is fighting for his political life. The fight has revealed something many people already knew. Behind the fuzzy sweater donned during the last election, behind the “fireside chat” chumminess that he was trying to cultivate, behind this façade of polite civilized behaviour, there resides the same man who was cadre for the Reform Party and Canadian Alliance. That political formation built itself on a combination of polarizing attacks on Quebec and neoliberal dogmatism. Harper in a corner, with his fangs bared, has showed himself not to have changed one iota.

The anti-Quebec politics he has unleashed are appalling. In Question Period December 3, Tory member after Tory member repeated the same two words over and over again – “separatist coalition” – 36 times to be exact, if the official record is to be believed.[1] Harper used the same language in his address to the nation December 3, saying that a time of crisis is “no time for backroom deals with the separatists.”[2] At various times, Tories were using the words “treason,” ” and “deal with the devil” as they carried their polemic against the proposed coalition.[3] This was clearly a planned, coordinated strategy, the most blatantly open anti-Quebec politics to come from the federal stage in years.

Just a few months ago, Harper was trying to woo the voters of Quebec, hoping to re-create the Brian Mulroney coalition of the 1980s. He had surprisingly supported the idea of calling Quebec a nation – something that angered many of his old Reform Party comrades. But pushed into a corner, he needs to rally his base – and nothing energizes the old Reform Party more than attacks on Quebec.

“In the space of just a few days” said one commentator, “the phobia of ‘separatists’ has reappeared in Ottawa and in English Canada, with a force we haven’t seen in years, since the referendum in 1995, since the Meech Lake controversy.”[4] It has become legitimate again to speak about Quebec with outright hostility and bigotry, made legitimate by the irresponsible rants of Harper and the Tory caucus.

Harper is aware just how inflammatory is his language. In the French version of his address to the nation, he translated the loaded word “separatist” into the much less value-laden “souverainiste”.[5] But this transparent ruse is unlikely to fool the people of Quebec, who are rightly recoiling in shock at the display of venom coming from Harper and his followers. As one radio commentator put it, the price for Harper rallying the troops to his anti-Quebec flag, was to put “scorched earth” between the Tories and what had been their developing base in Quebec.

Harper’s target is the Bloc Québécois (BQ), which has indicated it would support the proposed coalition between the Liberals and the NDP. Harper’s attack is ridiculous. First, the BQ is not part of the coalition – it has only indicated that it will give the coalition 18 months to govern. Second, this is not unusual. The BQ was, after all, central to keeping Stephen Harper’s last minority government alive in its early months. And these parliamentary details are beside the point. The Tories are focussing on the fact that the BQ supports sovereignty. That is their right. They are also the party supported by 1.3 million Quebeckers in the last election. The BQ is a legitimate part of the political spectrum in Canada. It has a long record of operating in the House of Commons – including being the official opposition in 1993, a party which has “contributed to debates outside matters of Quebec’s status and powers, on everything from climate change and Afghanistan to efforts to repatriate Omar Khadr” as even the editorial writers for The Globe and Mail have to admit.[6]

But Harper is teetering on the edge of losing his office, and will use every weapon at his disposal to say in office – even if that means fanning the flames of anti-Quebec bigotry. What brought Harper to this impasse was his stubborn commitment to neo-liberal orthodoxy, even in the face of the economic storm sweeping the world economy. In country after country, governments have turned their back on the neoliberal allergy to the state – and begun the process of rediscovering Keynesianism and state intervention – indispensable in the face of the horrors of the unfettered free market. But Harper and his finance minister Jim Flaherty – the latter trained in the neo-liberal era of Ontario’s Mike Harris – had delivered an economic update that instead of stimulating the economy, would have further depressed it. They are dogmatic neoliberal ideologues, very reluctant to abandon the old, failed orthodoxy.

Flaherty has been trying to argue that he has already stimulated the economy through previously announced tax cuts. The Department of Finance depends on four firms to help with the preparation of budget documents. One of these is the Centre for Spatial Economics. Flaherty’s view “is a fantasy” according to the Centre’s Robert Fairholm, quoted in The Globe and Mail. “Most of the short-term stimulus from these measures have already boosted economic activity, and so will not continue to provide [a] short-term jolt to growth.” The tax cuts coming January, 2009 put $2.5 billion into the economy. But the update was going to cut $4.3 billion, “so the net effect is contractive, Mr. Fairholm explained.” In fact, instead of stimulating the economy, Fairholm estimates that the impact of Flaherty’s “update” would be to turn a 0.3 per cent annual growth rate to a decline of 0.1 per cent.[7]

Harper has revealed his colours – first as a neo-liberal dinosaur who has no understanding of how to respond to the economic crisis, second as a politician willing to go to any lengths – including irresponsibly provoking an anti-Quebec backlash in English Canada – to consolidate his base and keep his job. No wonder that his actions have disgusted thousands, and that the three other parties in the House of Commons are trying to push him out.

Read next:
Harper out of Ottawa, Canada out of Afghanistan

© 2008 Paul Kellogg


[1] “40th Parliament, 1st Session: Edited Hansard: Number 012,” Wednesday, December 3, 2008, www.parl.gc.ca
[2] “Full text of Harper’s televised address,” www.thestar.com, December 3, 2008
[3] “Fanning anger toward Quebec,” The Globe and Mail, December 4, 2008, www.theglobeandmail.com
[4] Translated from Vincent Marissal, “Situation désespérée, stratégie du désespoir,” La Presse, 04 décembre, 2008, www.cyberpresse.ca
[5] Graeme Hamilton, “Old bogeyman usurps real crisis,” National Post, December 4, 2008, www.nationalpost.com
[6] “Fanning anger toward Quebec,” The Globe and Mail, December 4, 2008, p. A22.
[7] Cited in Heather Scofield, “Flaherty’s plan prolongs the pain, forecaster says,” The Globe and Mail, December 4, 2008, p. A4.

The year ‘laissez-faire’ became profane

Pity the poor priests of laissez-faire (the French phrase associated with the advocates of free market capitalism). They want to name a building at the University of Chicago after Milton Friedman. Milton was teaching there in 1976 when he won the Nobel Prize in economics. But 100 faculty members have signed a petition objecting. One of the 100, Bruce Lincoln told the press: “He was the darling of the Reaganite revolution and the American right … He was a scathing critic of the state playing a role of any importance … It’s now a whole lot more obvious to everyone that [Mr. Friedman] got us into some problems and that he didn’t have the final solution to everything that makes an economy work.”[1] That’s an understatement. The financial markets are breathing thanks only to a $3 trillion injection of public funds.[2] Laissez-faire has never been so discredited.

Others are figuring this out. We saw this in the run-up to the October 14 vote in Canada’s federal election. The Bloc Québécois were expected to lose a fair number of seats when Stephen Harper launched his 2008 bid for a majority. But they roared back into contention, ending up with 50 seats, just one shy of their 2006 result. There were several reasons for this comeback. The Tories alienated Quebec voters with a reactionary attack on culture, and an even more reactionary attack on youth “criminals.” But Bloc leader Gilles Duceppe, before any other leader, figured out that with the crisis wracking financial markets, “free-market” had become a swear word.

• During the French language leaders’ debate October 1, Duceppe charged that “Mr. Harper is a laissez-faire-ist like Mr. Bush and we see the disaster happening in the United States now.”[3]

• October 6, Duceppe demanding a recall of Parliament to debate the economic crisis said that Harper had no clue how to fix the broken economy “It is still the economic laissez-faire of George W. Bush.”[4]

• In Trois Rivières, October 7 he took it further. “With his economic philosophy, Harper is the worst thing that could happen to Quebec. It’s laissez faire … It is exactly like (George W.) Bush’s Republican policies and we see the results today.”[5]

• A week after the election, responding to Tories injecting money into Canada’s banking system, Duceppe said: “I think he [Harper] had to do that, but this is not enough. At first they said there was no problem at all. It was the George Bush laissez-faire (approach), and that was a huge error, with the results that we are seeing now.”[6]

What a sea-change. Starting with the entire Reagan-Thatcher years, and continuing during the so-called “neo-liberal revolution,” we were told that the state had caused all our problems. We were told that the market would cure our ills. We were told that if you let the free market do its work, incomes for the rich would go way up, but incomes for the rest of us would follow, even if at a slower pace. Wealth would trickle down, and incomes would trickle up. Language was easy. State, bad; market, good. “Laissez-faire” – the great slogan of Adam Smith, was a badge to be worn with pride.

Now, just one little $3-trillion bailout later, everyone is quietly hiding those badges. Laissez-faire has become a swear word.

© 2008 Paul Kellogg


[1] Cited in Paul Waldie, “He inspired Reagan’s revolution,” The Globe and Mail Report on Business, October 22, 2008, p. B1
[2] According to Barry Ritholtz, cited in Alice Gomstyn, “Bailout Critic: Plan Could Cost $3 Trillion,” ABC NEWS Business Unit, Oct. 13, 2008
[3] “Harper targeted on economy, crime in French debate,” cbc.ca, Oct. 2, 2008
[4] Rhéal Séguin, “Duceppe wants Parliament recalled over economy,” The Globe and Mail, Oct. 6, 2008
[5] “Harper improvising on economy, Duceppe charges,” The Gazette, Oct. 7, 2008
[6] “Ottawa has linguistic double standard: Duceppe,” The Gazette, October 22, 2008

The Septembers of Neoliberalism

It was September 11, 1973, that the neo-liberal experiment began. The brutal U.S.-backed coup against Salvador Allende’s government opened the door for the “Chicago Boys” – a group of Chilean economists who had studied under Milton Friedman at the University of Chicago[1] – to “reconstruct the Chilean economy … along free-market lines, privatizing public assets, opening up natural resources to private exploitation and facilitating foreign direct investment and free trade.”[2] September 7, 2008 – thirty-five years later – that experiment came to an end, not with a whimper, but a bang. The neo-liberal regime of George Bush – more closely identified than any other world figure with the politics of keeping government out of the market – is now presiding over a state intervention into the so-called “free” market that is without parallel. When the dust settles: a) hundreds of billions of dollars will have been spent to try and fix a broken financial system; b) a generation of free-market arrogance and ideology will lie in ruins, its ideological clarion call “neo-liberalism” completely discredited; and c) the U.S. empire will be exposed as a declining (if vicious) beast. The events of September 2008 mark a watershed in the history of capitalism.

Fannie and Freddie

The first act in this story is in many ways still the most significant if not the most dramatic. September 7, 2008, the United States Treasury announced it would seize control of two institutions called Fannie Mae and Freddie Mac. At the time, this represented “the world’s biggest financial bailout” (a record it would only claim for a few dozen hours). The U.S. government pledged to guarantee literally trillions in the two companies’ investments, something that estimates said would end up costing U.S. taxpayers in the order of $25 billion.

What are these peculiarly named institutions? Fannie Mae stands for “Federal National Mortgage Association” and Freddie Mac stands for “Federal Loan Mortgage Corporation.” Both are GSEs – “government-sponsored enterprises,” creations of the U.S. government, but which operate as shareholder run companies. Fannie Mae’s roots go back to the depression-era. It was created in 1938 to “provide funding to the housing market … Freddie Mac was created in 1970 to provide competition to Fannie Mae.”[3]

Their role in the housing market is indirect. Homeowners in the United States borrow money from lenders (banks and other financial institutions) just as in other countries. What Fannie and Freddy do is to buy these mortgages from the lenders. This gives the “mortgage initiators” instant cash, and a little bit of profit, allowing them to go back and quickly offer new mortgages. Fannie and Freddy then turn around and repackage the various mortgages they have purchased as “mortgage-backed securities.” They sell these securities on the secondary mortgage market – in effect borrowing money, but using these “securities” as collateral – counting on the income from the payment of mortgage principle and interest to give them cash to repay these loans.[4]

This “provides liquidity” to the housing market. It also has the effect of creating a huge incentive to get more and more people to buy houses, as at every level of this structure, incomes and profits are dependent on a constantly expanding base of home ownership. In the scheme above, there are massive fortunes to be made – by the banks and other mortgage issuers, by Fannie and Freddy and their hangers-on, and by the investors who buy up the Fannie and Freddy debt. Former Fannie CEO Daniel Mudd was in line to receive up to $8.4 million in compensation. Freddie Mac’s former CEO was in line for $15.5 million.[5] And John McCain’s campaign for the U.S. presidency, suffered a setback when it was revealed that Freddy Mac had been paying $15,000 a month from the end of 2005 until September 2008 to a firm owned by McCain’s campaign manager.[6] All had an incentive in “priming the pump” – creating incentives for working people to pony-up and enter the world of home ownership. The whole scheme works fine as long as homeowners can pay their mortgages. But if they can’t …

So base greed is an element that fed this bonfire. But that wasn’t the only, or even the biggest issue – the problems were structural. In the stock market crash at the turn of the century, huge fortunes were lost when the dot-com bubble burst. With investors burned from their experience in the stock market, U.S. interest rates were reduced to unprecedentedly low levels, as the U.S. federal reserve essentially “printed money” to stave off a deeper crisis. One key measure of interest rates, the U.S. federal funds rate, dropped below two percent in November 2001, and stayed below two percent for three years, bottoming out at just below one percent in December 2003.[7] Mortgage rates don’t track Federal Funds Rates exactly, but mortgage rates did come down, so that at their lowest point in 2003 and 2004, it was possible to get Adjustable Rate Mortgages (mortgages which increase or decrease with the rise and fall of interest rates) for between 3 and 4 percent.[8] In fact, people often were able to get mortgages below that rate – with incentives of very low interest rates in the first few years of the mortgage to encourage the plunge into home ownership. With millions moving into home ownership, the mortgage-backed securities market prospered. The effect was to create an environment where billions of dollars could flee an insecure stock market, and find a “safe haven” in the housing market, by investors moving from speculating in stocks to speculating in “mortgage-backed securities.”

This structure was riven with problems. The rush into home buying which this created, pushed house prices very high very fast. This has been a visible problem for some time. In 2006, one analyst wrote: “Cheap money turned the real estate boom into a frenzy … prices in most hot markets … soared by 55 per cent to 100 per cent (on top of inflation). Trying to keep pace, buyers increasingly resorted to riskier loans to lower monthly payments. Two types became the rage: adjustable rate mortgages and exotics.” We have already looked at the ARMs. The Exotics bear a little examination, the most extreme of which was “the negative-amortization loan, which allows borrowers to pay less than the interest due. The unpaid interest is tacked onto the principal, so the size of the loan grows every month. In 2004 and 2005, no less than 75 per cent of all mortgages were either ARMs or exotic loans, compared to 20 per cent in the late 1990s.”[9]

This outline is important. Some are blaming poor home buying decisions by ordinary working people for the way in which this crisis has unfolded. But it was not “reckless spending” by the poor. It was a structure, driven by greed, which created enormous pressures and incentives to abandon renting and jump into the home-buying game – simply because massive fortunes were being made. Suddenly, working people were being pressured to take on debt far in excess of their capacity to pay. The best way of measuring this is looking at the ratio of house prices to household income. The graph here shows a steady upward climb in that ratio for the United States as a whole, from the late 1990s to the mid-point of this decade – in some cities, an extremely steep rise.[10]

But interest rates don’t stay low forever. Here the story has another layer of complications. There is a close relationship in most countries between the health of the currency and the trend in interest rates. Roughly, if the country is increasing its international indebtedness, there will be downward pressure on its currency relative to other currencies. This can be countered by increasing interest rates to attract investors in spite of the increasing debt burden. At times these rates have to go up considerably to prevent a precipitous fall in the currency.

There are some who say this pressure has yet to make itself felt in the United States. The entire post-war period has been defined by the domination of the international economy by the U.S. dollar. Its “unique” place in the world economy is often seen as making it relatively immune to the downward pressure that other currencies experience when their economies become increasingly indebted. A commonly used measure of this is a comparison of the U.S. dollar to major currencies. The resulting graph does not show overwhelming U.S. dollar weakness, but rather a generations-long fluctuation with no clear trend either up or down.[11]

But there is a problem with this way of representing the health of the U.S. Dollar. The figures in this comparison go back only until 1973. This leaves out of the picture the biggest story in the history of the U.S. dollar, the effect of it “freeing itself” from the gold standard. This was the decision Richard Nixon took in 1971, allowing the U.S. to “print dollars” unencumbered by maintaining an equivalent stock in gold. The most readily accessible international comparative figures, because they begin in 1973, do not factor this epochal event into their picture. But it is possible to improvise a comparison.

The chart “Decline of the U.S. Dollar” shows the U.S. Dollar measured against the Yen (currency of Japan) and something that is being called the “EuroMark” – a statistical composite of the Mark, formerly the currency of Germany, Europe’s biggest economy, and the Euro which has now replaced the Mark and most other major European currencies. The result is very clear. The U.S. dollar is approximately 1/3 of what it was in 1971, compared to the Yen and the “EuroMark”.[12]

The U.S. Dollar has been steadily declining against its major competitors for years. The devaluation that happened after the abandonment of the gold standard was immediate and quick, becoming precipitous in the late 1970s. This was reversed in the early 1980s by a policy of very high interest rates, then fell steadily until the 1990s, recovering somewhat in the Clinton years, but returning to decline under Bush. As the dollar declines, it inevitably leads to a day when interest rates have to go up, or the dollar’s fall could accelerate dangerously. So in Bush’s second term, interest rates have inched upwards, and this in turn became part of an environment pushing higher and higher the interest rates on millions of peoples’ mortgages.

Finally, none of this works if homeowners start to lose their jobs. When this cycle began, unemployment was at historically low levels – just 3.9 per cent, in the last four months of 2000. That increased to 6.3 percent by September 2003, dropped below five percent through the last half of 2005 and the first two months of 2008, but has since climbed steadily to 6.1 percent by August of 2008.[13]

The effects of these problems became visible in the summer of 2007. With interest rates rising, some homebuyers could not make the payments, and the number of defaults began to rise. Rising interest rates and rising unemployment, started to decrease demand for houses, so prices began to fall. And with house prices falling, many saw the value of their house fall far below the principal remaining on their mortgage – creating an incentive to simply walk away from the debt – default on the mortgage, and go back to renting. The result has been the highest rates of foreclosures in the modern era. A report from the Mortgage Bankers’ Association indicated that: ”about 2.75 percent of all home loans, or about 1.75 million mortgages, were in foreclosure at the end of June [2008], up from 2.47 percent in March. That was the highest foreclosure rate since 1979, when the Mortgage Bankers first collected the data.”[14]

As these millions of foreclosures rippled through the system, the whole flimsy structure started to shake. Between them, Fannie and Freddy had issued $3.7 trillion worth of mortgage-backed securities.[15] But suddenly, as mortgage payments started to fall because of defaults, as the assets backing these mortgages started to lose value with the falling prices of houses in the United States, these securities looked a whole lot less secure.

Bankers’ Strike

Neo-liberalism is a modern restatement of an old “free-market” orthodoxy. Markets know best. Let the “hidden hand” of the market do its magic, and a million individual decisions based on individual self-interest, will end up with a virtuous direction for the economy and society as a whole. Sometimes there are barriers to the operation of this hidden hand – too much government intervention, too much regulation being two of the most often cited. Get rid of them. The state’s role is to do away with regulation, to unfetter the markets from the hands of government, to let the markets do their work.

So – from the standpoint of neo-liberal orthodoxy, it is a matter of some indifference that Fannie and Freddy were under stress. Joseph Schumpeter argued last century that capitalism worked through processes of “creative destruction” where periodically whole sections of capital are destroyed in economic slump. This process, while painful, was central to the working of capitalism, clearing the ground for a new round of investment, the way in which a forest fire burns away the underbrush, allowing new saplings to reach for the sky. In Schumpeter’s words the “creative destruction” of competition, bankruptcy and consolidation “revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist has got to live with.”[16]

But the capitalists who made the decisions leading to the impasse of the U.S. financial system are not going to live with the consequence of their actions. Something pushed the neo-liberals into acting against neo-liberal orthodoxy and save those capitalists from the consequences of their actions. What the neo-liberals discovered was that the U.S. economy was not all-powerful, that had they let the process go too far, and the consequences of a full-blown cycle of “creative destruction” would have been disastrous. The issue was not simply one of mortgages – it was about the structural problems of the international, not just the U.S., capitalist system.

So far only one part of the story has been told, the story of mortgages, Fannie and Freddy, and their selling of “mortgage-backed securities”. The next question that has to be asked is, who buys these securities? The economists’ answer is that they are bought by “risk-averse investors such as banks, pension funds and central banks around the world,”[17] investors in other words who want a guaranteed return on their investments, and little or no risk of these investments turning into worthless paper. Fannie and Freddy’s total liabilities is mostly debt, most of it from the sale of mortgage-backed securities, and it totals in excess of $1.7 trillion dollars.[18] Significantly, increasing portions of that debt have been sold to non-U.S. banks and investors. The top five in reverse order, as of June 2007 were Taiwan ($55 billion), South Korea ($63 billion), Russia ($75 billion), Japan ($228 billion) and China ($376 billion).[19] The entire structure then was increasingly dependent on the willingness of banks and other institutions in these countries, to continue giving Fanny and Freddy billions of dollars.

This summer, it came to an end. Under pressure from their eroding mortgage business, Fannie stocks fell from $67.30 a share October 5 2007, to just $7 a share, September 4, 2008.[20] Freddy stocks followed the same downward slide, from $63.43 to $4.95.[21] Suddenly, non-U.S. investors, particularly in Asia, began to worry. The slide in share value of Fannie and Freddy raised the possibility that the two companies could go bankrupt. That would leave banks and investors in Asia and elsewhere holding pieces of paper worth billions of dollars less than their face value. “Chinese banks ‘were probably facing significant losses,’ says Logan Wright, an analyst with Stone & McCarthy Research.”[22]

Bankers from outside the United States began to apply leverage. In the first half of 2007, central bank holdings of Fannie and Freddie securities increased on average by $22 billion a month. But in 2008, those holdings fell by $27 billion from mid-July through early September.[23] And the Financial Times reported in August under the headline “Bank of China flees Fannie-Freddie,” that “Bank of China has cut its portfolio of securities issued or guaranteed by troubled US mortgage financiers Fannie Mae and Freddie Mac by a quarter since the end of June. The sale by China’s fourth largest commercial bank, which reduced its holdings of so-called agency debt by $4.6bn, is a sign of nervousness among foreign buyers of Fannie and Freddie’s bonds and guaranteed securities.”[24] “The threat of a central bank buyers’ strike was real,” accord to Brad Setser, a former Treasury Dept. official and now a fellow at the Council on Foreign Relations.[25]

Neo-liberal orthodoxy dictated “let the market rule,” let the processes of creative destruction work themselves out. But bankers outside the U.S. who stood to lose billions from this market failure said; “Creative Destruction be damned. If you don’t act, we will start withdrawing our money. We are already doing it. We will not let you ‘cleanse’ your economy by leaving us holding worthless pieces of paper.” So facing an enormous catastrophe, Bush and the U.S. administration suddenly switched from the world’s biggest neo-liberals, to the world’s biggest state-capitalists, when they intervened to guarantee the debt held by Fannie and Freddy. Many of their neo-liberal ideologues were left wondering what had hit them. This whole thing might, said one commentator become a “nightmare scenario, the descent into quasi-socialism” which “balloons the national debt and wrecks foreign investors’ faith in the economy.”[26]

The state and capital

But of course this has nothing to do with “socialism” – unless it is a kind of Frankenstein’s Monster socialism, where the state robs from the poor to give to the rich – because that is exactly what is happening: tax dollars from U.S. workers to be used to pour into the balance sheet of two failed corporations. It is a myth of the neo-liberals that the state is separate from the market. There is of course the central role of state militarism. The British Navy ruled the waves so that British business could penetrate every corner of the globe in the 19th century. The U.S. military has time and again overthrown governments in Latin America to keep the hemisphere open for business. But there are also the directly economic ways in which the state is intimately tied to the development of capitalism. British imperialism jealously protected its industries behind the walls of empire. India did not build its rail network with British steel and rolling stock because of the market, but because of imperialism.[27] Japanese capitalism burst into the 20th century after the Meiji Restoration used the Japanese state to mobilize resources in order to industrialize.[28] Canadian capitalism had at its core the construction of a continental rail network, which bankrupted the private capitalists, and was only finished because of the state-capitalist “National Policy.”[29] In South Korea, the industrial revolution in the post-war era was inconceivable without the “chaebols”, very much creatures of the South Korean state.

The myth that capitalism is about the retreat of the state, and that socialism is about its reverse – state intervention – is a myth made easier by the long nightmare of Stalinism, where there were states which called themselves “socialist” and which said the same thing as the neo-liberals only in reverse: “We are socialist because the state owns everything: never mind the absence of civil rights and the absence of democracy.” But the Stalinist states are long gone, and a new generation is returning to the roots of the socialist movement, understanding that socialism is about popular control, workers’ control of the economy and the state, or it is about nothing. It can be important to have the state intervene to fix problems in the economy. But the key question becomes – who controls that state? In the United States, we can be pretty sure that the state is controlled by the corporate elite.

That capitalist state, having got the taste of government intervention to save capitalism from itself, has now become ravenous for more. Fannie and Freddy were only two of the institutions under stress because of economic problems in the United States. September 16, the U.S. Federal Reserve took over American Insurance Group for $85 billion. House Speaker Nancy Pelosi criticized the rescue, calling the $85 billion a “staggering sum.” Ms. Pelosi said the bailout was “just too enormous for the American people to guarantee.”[30] But that staggering sum has now been dwarfed by another even larger sum. United States’ Treasury Secretary Henry Paulson is asking Congress to come up with $700-billion to clean “toxic assets” out of the U.S. financial system. What he wants is to have enough money on hand so that any bank or financial institution which has a piece of paper that is looking pretty worthless, Paulson will have the money to say “no problem, we’ll take it off your hands.”

How do you come up with this “worst-case scenario” figure? Federal Reserve Chairman Ben Bernanke said in testimony that “ ‘various metrics’ could be used to arrive at that $700 billion number. It is 5% of $14 trillion in outstanding mortgage debt and roughly the same percentage of the $10 trillion to $12 trillion of commercial bank assets. ‘So it seems like an appropriate amount relative to the size of the problem.’”[31]

Seems like an appropriate amount. You would have thought he would have hired someone to get figures so that he could be a little more definitive given the “size of the problem.” What we are looking at is a trillion-dollar intervention by the U.S. government into the financial system of the world’s biggest economy – the biggest ever economic intervention by a state into any economy anywhere – that is going to change the shape of economics and politics for a generation. The crisis brings into focus three central points.

1) The decline of the U.S. and the Danger of Militarism

There has been a sharp divide in anti-capitalist circles over the position of the U.S. in the world system. Theorists like Antonio Negri and Michael Hardt argued that empire had become disembodied from the state.

In contrast to imperialism, Empire establishes no territorial centre of power and does not rely on fixed boundaries or barriers. It is a decentred and deterritorialized apparatus of rule that progressively incorporates the entire global realm within its open, expanding powers. Empire manages hybrid identities, flexible hierarchies, and plural exchanges through modulating networks of command. The distinct national colours of the imperialist map of the world have merged and blended in the imperial global rainbow.[32]

The actions of states in the context of the current crisis shows this analysis to be inadequate. The states of the various central banks which had holdings of U.S. securities, including the state in China – all have particular interests that they seek to assert. Similarly, the state in the U.S. is suddenly enormously and obviously important to Empire – doing what no corporation on its own can do, mobilizing the tax resources of working people to bail out the financial system. “Empire” is just as bound up with the state system – a system of competing and predatory states – as were all previous systems of imperialism.

Theorists like Leo Panitch and Sam Gindin have challenged Hardt and Negri on exactly this point, seeing very clearly the continuing role of the state in shaping the field of power that has been called “Empire.” However, in the place of a system of imperialist states, they tend to reduce “Empire” to just one state – the overwhelmingly dominant U.S. state. They have argued that U.S. penetration of European and Asian capital is so profound as to make irrelevant and archaic any notion of inter-imperial rivalry.[33] But this view too is being revealed as problematic. The long decline of the U.S. dollar, documented above, is an indication of the worsening competitive position of the United States against its rivals in Europe and Asia. And the way in which this bailout took shape – in part from the threat of a strike by central bankers outside the United States, refusing to further invest in U.S. securities, is another powerful indicator of a changing world order. The U.S. remains the world’s biggest economy and most powerful state. But its position relative to others has been in decline for decades, and this débacle shows that the decline is ongoing.

There is a very developed literature, under the heading of the “Permanent Arms Economy,” that makes a compelling case to explain this decline.[34] The long-term structural shift of resources into arms has effectively starved key sections of the U.S. economy of investment, allowing others in the world system to catch-up and in some cases economically overtake the United States. The massive military presence sustained by the U.S. since the Korean War, has been accomplished at the cost of its international competitiveness. Other countries have invested in their “civilian economies” to a much greater extent than the U.S., overtime weakening the relative position of the U.S. in the world system, something now being starkly revealed in the current economic crisis.

But we also know from the last empire to fall under the weight of its arms spending – the Soviet Union – that an addiction to war might have negative effects for an economy, but it is still an addiction. The Soviet Union stayed mired in pointless and bloody wars abroad virtually until it collapsed in the years 1989-1991. The U.S. addiction to arms spending is likely to have the same contours – bad for the economy, but unshakeable for the state. It means that the wars in Iraq and Afghanistan are likely to be with us for some time.

2) Ideological crisis of neo-liberalism

This September financial shock, has opened up a period of deep confusion and splits for the hegemonic ideology of neo-liberalism. The $700-billion bailout is being pushed by Republican George W. Bush, the world’s pre-eminent neo-liberal. Its principal opposition has come from – the staunchly neo-liberal Congressional Caucus of his own party.[35] It was these neo-liberal hardliners who were at the core of the defeat of the $700-billion bailout package in the first vote in Congress.[36] The neo-liberal monolith has cracked over its key precept – that markets should be “free” of the state.

Without any question, this chaotic, sudden shift from the neo-liberal orthodoxy of the small state and the free market to a new state-capitalist interventionism – this shift will like a thunderbolt make millions question the orthodoxies of neo-liberalism. Why are the bankers being given billions, while those who have lost their homes get nothing? In the parlance of the journalists, “why is Wall Street getting billions that come from the pockets of the ordinary folk of Main Street”? If we are going to have state intervention, why not go all the way – use the money for public transit, green jobs, public housing, schools and education, investments that help ordinary people not overpaid bankers?

But as Naomi Klein has pointed out, a crisis in the ideology of neo-liberalism is not the same thing as a retreat from the policies of neo-liberalism – the privatization and deregulation which have so plagued working peoples’ lives for more than a generation.

It would be a grave mistake to underestimate the right’s ability to use this crisis – created by deregulation and privatization – to demand more of the same. … the dumping of private debt into the public coffers is only stage one of the current shock. The second comes when the debt crisis currently being created by this bailout becomes the excuse to privatize social security, lower corporate taxes and cut spending on the poor. A President McCain would embrace these policies willingly. A President Obama would come under huge pressure from the think tanks and the corporate media to abandon his campaign promises and embrace austerity and “free-market stimulus.”[37]

It is worth remembering that one of the modern architects of neo-liberalism, Margaret Thatcher, was very clear on this point. Thatcher is associated with the phrase “there is no alternative” or “TINA” – usually seen as justifying the unbridled rule of competition. Susan George writes that Thatcher:

… was well known for justifying her programme with the single word TINA, short for There Is No Alternative. The central value of Thatcher’s doctrine and of neo-liberalism itself is the notion of competition – competition between nations, regions, firms and of course between individuals. Competition is central because it separates the sheep from the goats, the men from the boys, the fit from the unfit. It is supposed to allocate all resources, whether physical, natural, human or financial with the greatest possible efficiency.[38]

But in Thatcher’s classic and most often cited use of the term, this was not quite what she said and this was not quite her point. At a speech to the Conservative Women’s Conference, May 21, 1980, Thatcher’s theme was the way in which wages were increasing too quickly.

Wages in the public sector are still higher than the country can afford … earnings will have to rise much more slowly if we are to avoid still more unemployment and if we are to get inflation down. It is too often forgotten that during the last two years there has been considerable increase in average living standards. What we produce has been growing much more slowly. We have to get our production and our earnings into balance. There’s no easy popularity in what we are proposing but it is fundamentally sound. Yet I believe people accept there’s no real alternative.[39]

The point is, Thatcher was not in the first instance driven by an abstract commitment to the market, but by a class commitment to transferring wealth from workers to employers. In this, the role of the state is a tactic, not a principle. The Thatcherite state showed its capacity to intervene against workers’ wages with real brutality during the bitter miners’ strike of 1984-1985.[40] Neo-liberal orthodoxy may lie exposed as nonsensical, but the class which brought us neo-liberalism remains in power, motivated by the same project – capturing the wealth produced by “Main Street” and making sure it ends up in the pockets of “Wall Street.”

3) The need for social movements against capitalism in all its forms

Which leads to the most important point, the need to insist that Thatcher and the neo-liberals are wrong – there is an alternative. In the 1990s and early 21st century, there was a magnificent international movement against neo-liberal globalization. The great protests against NAFTA led by the Zapatistas, the protests against the WTO in Seattle, against the FTAA in Quebec City, against the G8 in Genoa – these protests mobilized hundreds of thousands.

But the political leadership of these movements rested in groups like ATTAC in France or the Workers’ Party of Brazil. For them the target was not capitalism itself, but capitalism in its neo-liberal form. Neo-liberalism is now in open crisis, but the alternative on offer is not re-assuring – a strong state that protects corporations from their own excesses, and does so by taxing and squeezing the wages of ordinary workers. The problem is not just neo-liberalism. The problem is capitalism, whether in its “neo-liberal” or “state-interventionist” form. The next round of anti-corporate mobilizations needs that understanding at its centre.

We are seeing today in North America the hollowness of the neo-liberal dystopia. Others saw it earlier. It was after all the indigenous people of Chiapas who rose up against the neo-liberal North American Free Trade Agreement (NAFTA) in January, 1994, the peasants of Cochabamba in 2000 who stopped the water privatizers in their tracks, the masses of Caracas who in 2002 prevented the coup d’état which would have restored neo-liberalism in Venezuela, part of the swelling rage of all the oppressed in Latin America who, the principal road-block to the 2005 imposition of the U.S. led neo-liberal Free Trade Area of the America (FTAA). Perhaps just as neo-liberalism’s birth was in Latin America, it will similarly be Latin America where we will see the beginnings of the new social movements challenging capitalism in all its forms.

© 2008 Paul Kellogg


[1] Gilberto Villarroel, “La herencia de los ‘Chicago boys’,” BBCMUNDO.com, December 10, 2006, http://news.bbc.co.uk
[2] David Harvey, Spaces of Global Capital: Towards a Theory of Uneven Geographical Development (New York: Verso, 2006), p. 12
[3] “US rescues giant mortgage lenders,” BBC News, September 7, 2008
[4] Alana Semuels, “Q&A about mortgage giants Fannie Mae, Freddie Mac,” Los Angeles Times, September 8, 2008, www.latimes.com
[5] The Associated Press, “Answers to your Fannie Mae, Freddie Mac takeover questions,” New York Daily News, September 11, 2008, www.nydailynews.com
[6] Jackie Calmes, David D. Kirkpatrick, “McCain Aide’s Firm Was Paid by Freddie Mac,” The New York Times, September 23, 2008
[7] Bank of Canada, “Monthly Series: V122150: Federal Funds Rate”, www.bankofcanada.ca
[8] HSH Associates Financial Publishers, “HSH’s National Monthly Mortgage Statistics,” www.hsh.com
[9] Shawn Tully, “Real Estate Survival Guide,” Fortune, Vol. 153 Issue 9, May 11, 2006, pp. 94-102
[10] Calculated from Joint Centre for Housing Studies, The State of the Nation’s Housing 2007, “Additional Table: Metropolitan Area House Price-Income Ratio, 1980-2006,” www.jchs.harvard.edu. Figures are not yet readily available for 2007 and 2008. However, an update has been released to one analyst, which shows the same general trend, with the addition that from 2007 on, house prices have started to fall – the graphical representation of the bursting of the housing bubble. See CalculatedRisk, “Update: Ratio Median House Price to Median Income (2008 Report),” June 24, 2008, http://calculatedrisk.blogspot.com
[11] U.S. Federal Reserve Board, Federal Reserve Statistical Release, H.10 “Foreign Exchange Rates,” “Price-adjusted Major Currencies Dollar Index,” www.federalreserve.gov
[12] Derived from “FXHistory®: historical currency exchange rates,” accessed September 24, 2008.
[13] Bureau of Labor Statistics, U.S. Department of Labor, “Labor Force Statistics from the Current Population Survey,” http://data.bls.gov
[14] Vikas Bajaj, “Foreclosures Rose as Delinquencies Eased in Quarter,” The New York Times, September 5, 2008
[15] According to Peter Coy, “Back on Track – Or Off The Rails?” Businessweek, September 22, 2008, p. 24
[16] Joseph Schumpeter, Capitalism, Socialism and Democracy (New York: Routledge, 1994), p. 83
[17] Coy, “Back on Track,” p. 24
[18] MarketWatch, The Wall Street Journal Digital Network, www.marketwatch.com and Forbes.com
[19] U.S. Treasury Dept., as reported by Bruce Einhorn and Theo Francis, “Asia Breathes a Sigh of Relief,” Businessweek, September 22, 2008, p. 32.
[20] Yahoo Finance, http://yahoo.finance.com
[21] Yahoo Finance, http://yahoo.finance.com
[22] Einhorn and Francis, “Asia Breathes A Sigh of Relief,” p. 32
[23] Einhorn and Francis, “Asia Breathes A Sigh of Relief,” p. 32
[24] Saskia Scholtes and James Politi, “Bank of China flees Fannie-Freddie,” Financial Times, August 28, 2008
[25] Einhorn and Francis, “Asia Breathes A Sigh of Relief,” p. 32
[26] Coy, “Back on Track – Or Off the Rails,” p. 25
[27] Clarence Baldwin Davis, Kenneth E. Wilburn, Ronadl Edward Robinson, Railway Imperialism (Westport: Greenwood Press, 1991)
[28] Colin Barker, “Origins and Significance of the Meiji Restoration,” 1982, www.marxists.de
[29] Stanley Ryerson, Unequal Union (New York: International Publishers, 1968)
[30] Edmund L. Andrews, “Fed’s $85 Billion Loan Rescues Insurer,” The New York Times, September 16, 2008
[31] Joshua Zumbrun and Liz Moyer, “Your Guide To The Bailout Debate,” September 24, 2008, Forbes.com
[32] Michael Hardt, Antonio Negri, Empire (Boston: Harvard University Press, 2000), pp. xii-xiii
[33] See essays in Leo Panitch and Colin Leys, eds., Socialist Register 2004: The New Imperial Challenge and Socialist Register 2005: The Empire Reloaded (London: Merlin Press). For an exchange that goes over this controversy in detail, see: Alex Callinicos, “Imperialism and Global Political Economy,” International Socialism 108 (Autumn 2005); Leo Panitch and Sam Gindin, “ ‘Imperialism and Global Political Economy’ – A Reply to Alex Callinicos,” International Socialism 109 (Winter 2006); and Alex Callinicos, “Making sense of imperialism: a reply to Leo Panitch and Sam Gindin,” International Socialism 110 (Spring 2007) – all available online at www.isj.org.uk.
[34] See Michael Kidron, Capitalism and Theory (London: Pluto Press, 1974) for a classic development of this thesis. Some of Kidron’s writings are available at The Marxists Internet Archive, www.marxists.org
[35] Sheldon Alberts and Don MacDonald, “Bailout plan stalls as conservative Republicans voice their opposition,” The Vancouver Sun, September 26, 2008
[36] Carl Hulse and David M. Herszenhorn, “Lawmakers Defy Bush and Party Leaders, Rejecting Bailout,” The New York Times, September 29, 2008
[37] Naomi Klein, “Now is the Time to Resist Wall Street’s Shock Doctrine,” The Huffington Post, September 25, 2008
[38] Susan George, “A Short History of Neoliberalism: Twenty Years of Elite Economics and Emerging Opportunities for Structural Change,” Transnational Institute,, March 24, 1999, www.tni.org
[39] Margaret Thatcher, “Speech to Conservative Women’s Conference,” Margaret Thatcher Foundation, May 21, 1980, www.margaretthathcer.org
[40] See, among other accounts, Alex Callinicos and Mike Simons, The Great Strike: The Miners’ Strike of 1984-5 And Its Lessons (London: Socialist Worker, 1985)